House tax looks a business exemptions
The House Tax Committee today held a hearing on HB 2434 which would change the business income tax exemption that has allowed over 330,000 Kansas businesses to pay no income tax at all. This bill would fully tax passive income – rents and royalties – and put limits on the exemption for other business income. For tax year 2015, the first $150,000 of business income would be exempt; it would drop to $100,000 for tax year 2016 and beyond.
Passage of the bill would raise $52.7 million in 2015, $67 million in 2016, and $72 million in 2017.
The Committee recessed without taking action.
They returned at noon and were given a new plan developed by Rep. Suellentrop (R-Wichita).
The Suellentrop plan would:
- Make itemized deduction adjustments.
- Begin taxing “guaranteed payment” of certain business entities.
- Freeze income tax rates.
- Sales tax at 6.5%, 5.9% for food.
- Increase motor fuel tax by 5 cents per gallon.
- Increase cigarette tax by 75 cents per pack.
- Increase liquor enforcement tax from 8% to 10%.
- Enact a tax amnesty program.
- Adopt the MCO privilege fee adjustment.
The Committee recessed again to think about the plan and returned at 1:45 for discussion.
The first action was to put the Suellentrop plan into a bill and, on a motion of Rep. Suellentrop, the plan was put into SB 31.
As discussion began, Rep. Kelley (R-Arkansas City) made a motion to strip out the taxation of guaranteed payment of certain business entities (second item above). This is an arrangement by which a partner is paid a set amount of income from a business regardless of the whether the business made a profit in that year. Under the 2012 tax bill, this became exempt income. Kelley asserted that it was unfair to take people off the tax rolls and then put them back on. Kelley’s motion failed on a voice vote.
The next motion came from Rep. Rhoades (R-Newton) who moved to strip out the third item, freezing the current sales tax rates. Rhoades also argued for fairness as people expect the rates to drop. Additionally he expressed support for staying on the “march to zero.” The Rhoades motion passed on a voice vote.
Rep. Sawyer (D-Wichita) requested an updated fiscal profile with the Rhoades amendment and a break was taken to allow staff to provide that. When the report came it showed that by continuing to reduced income tax rates, the positive fiscal impact of the plan would be reduced dramatically eventually turning a positive $124.4 million ending balance in 2018 to a negative $214.9 million.
Rhoades then made a motion to repeal the sales tax exemption on public building projects. This would have the effect of making units of government pay sales tax on new construction. It would dramatically increase the cost of public building projects.
Chairman Kleeb (R-Overland Park) said that the committee would be having a hearing on a bill to do this tomorrow morning and so he adjourned the committee and announced that they would reconvene tomorrow at 10:00 am.
Senate Tax approves plan
The Senate Tax Committee met this morning and passed out Senate Sub for HB 2109, the tax plan put together by Chairman Donovan last week. The bill is sent to the full Senate without a recommendation.
This plan, which is similar to the Suellentrop plan in some ways, includes the following:
- Replace the non-wage business income tax exemption with a payroll credit (this costs the state far less than the income tax exemption).
- Raise the sales tax to 6.5% with food at 6.0%.
- Add the 20 mill levy to car property tax.
- Increase the cigarette tax by $0.50 per pack
- Increase the motor fuel tax by $0.05 per gallon.
- Increase the tobacco products tax to 15%.
- Include the Governor’s tax amnesty proposal.
- Include income tax rate freezes.
- Combined itemized deduction plan – accelerated “haircuts;” repeal of all but home mortgage interest, property taxes paid, charitable.
The bill will go to the full Senate for debate, amendment, and a vote.