Topeka — A proposal to exempt new business machinery and equipment from property taxes has bipartisan support, but even some legislators who like the idea worried Wednesday it could rob cities and counties of revenue.
Gov. Kathleen Sebelius wants to eliminate property taxes on machinery and equipment purchased after Jan. 1, 2007. The exemption would apply not only to heavy industrial machinery but also to office fixtures such as chairs, desks and computers.
Sebelius has no estimate on how much state and local governments could lose under the proposal, which she sees as a way to attract and retain businesses in the state.
Mark Beck, director of the division of property valuation for the Kansas Department of Revenue, said that the proposal would be expected to cost the state little money, if any. That's because many major investments in machinery and equipment already receive tax breaks approved by local governments, and the pace of equipment depreciation has been unable to keep up with new additions to the tax rolls.
"We're losing that value base already," said Beck, who noted that the proposal would allow small businesses to get a break on their equipment purchases.
"Most new jobs are generated by small businesses," Beck said. "This allows the small business people to get in on the incentives."
Business leaders have pushed for reducing or eliminating property taxes for machinery and equipment for years, and many Republicans were receptive well before the Democratic governor's proposal.
However, some GOP legislators have other proposals for cutting business taxes, and they acknowledged they'll have to study how Sebelius' plan would affect cities and counties.
Craig Weinaug, Douglas County administrator, already has criticized the proposal. While he likes the idea of eliminating what he considers a "lousy" tax - "It's a very cumbersome tax to administer," he said - he knows it would force local officials to find alternative revenues.
"Either the real estate portion of the property tax needs to go up to make up the difference, or services are cut back that are provided by local governments," Weinaug said.
Still, the House Taxation Committee plans to open hearings on the property tax proposal the week of Jan. 23.
"There's a great deal of interest," said committee Chairman Kenny Wilk, R-Lansing. "We want to move the bill through the House as quickly as possible."
Sebelius announced her proposal last month, saying it would be a step toward eliminating all property taxes on business machinery and equipment.
House Speaker Doug Mays, R-Topeka, said: "That would do more for small business than anything else we could do."
There would be some effect on state revenues, because the state levies property taxes of $21.50 a year on every $1,000 of a property's assessed value, most of it to raise money for schools.
But the effects could be much more significant to cities and counties, which rely far more heavily on property taxes than the state.
State and local governments raised $230 million from property taxes on business machinery and equipment in 2004. However, state officials don't know how much can be attributed to new machinery and equipment.