Franchise tax change hits large firms

New cap spares small businesses

A reworked franchise tax may not make any financial difference to the state of Kansas, but it certainty isn’t good news for Lawrence Paper Co.

“It’s going to cost us another $15,000 this year, which is a hell of a burden when you’re trying to keep employment up,” said Justin Hill, president of the packaging business that has about 300 employees.

Lawrence Paper is among the 98,000 businesses throughout Lawrence and the state of Kansas faced with calculating the effects of adjustments approved last year for the state’s franchise tax.

While all businesses were subject to the tax a year ago — paying 0.2 percent of their equity or net worth, up to a maximum bill of $5,000 — this year’s costs are shifting. Any business with an equity or net worth of $100,000 or less no longer needs to pay.

Rep. Tom Holland, D-Baldwin, pushed for the change as a break for small businesses.

“I’m stepping up for the little guy,” said Holland, noting that the move was intended to be “revenue neutral” for the state. “I’ll go to bat for the small-business person any day of the week.”

Larger businesses are left picking up the slack. While qualifying businesses now pay the tax at a lower rate — 0.125 percent of equity or net worth — their payment cap has risen to $20,000.

Caught in the middle: Businesses such as LRM Industries Inc., a Lawrence-based road contractor and supplier of concrete and asphalt.

The company used to pay $5,000 in franchise taxes, but this year expects to pay about 20 percent more, said Steve Glass, LRM president. His company isn’t big enough to hit the new cap, while other, larger operations remain protected from spiraling tax costs.

“Every additional cost is of concern,” Glass said. “To me, why do we have a cap? It’s to protect the big companies. I don’t have a problem helping the small businesses, but let’s not do it on the backs of middle-sized companies.”

Bills for businesses with fiscal years ended Dec. 31 have until April 15 to pay their franchise taxes.