Topeka The Senate on Thursday tied a new investment tax credit for hundreds of businesses to Gov. Kathleen Sebelius' proposal to phase out property taxes on business machinery and equipment.
Senators gave their package first-round approval on a voice vote, with final action expected Friday. The House passed a machinery tax bill in February and has endorsed several other tax breaks. The two chambers plan to negotiate the final contents of tax legislation.
The Senate's package represents an attempt to stimulate the economy, and the total breaks for businesses could exceed $740 million over the next six years. Cities and counties would shoulder the bulk of the burden.
But backers believe the tax breaks will encourage firms to buy new equipment, make other investments and create jobs so the economic activity would generate enough revenues to overcome what the state, cities and counties would otherwise lose.
"If we reduce the burden on businesses, they're able to increase investments," said Sen. Phil Journey, R-Haysville. "We increase the tax base. We have more people employed, and they're better jobs."
The biggest break in the bill would grant an exemption from property taxes to businesses for the new machinery and equipment they buy, starting July 1. The exemption would apply not only to heavy industrial machinery but also to office fixtures such as chairs, desks and computers.
Eventually, when all machinery and equipment purchased before July 1 was replaced, businesses would pay no property taxes on those items. The bill mirrors Sebelius' plan, except that she proposed applying the exemption starting on Jan. 1, 2007.
Cities and counties would lose an estimated $628 million over six years. However, the bill promises $199 million in state aid to lessen the shock should economic activity not generate enough new revenues.
The proposal drew some criticism because the change could cost cities and counties far more than it would cost the state.
"Why don't we at least give away our own money?" said Sen. Pete Brungardt, R-Salina.
Senators voted 39-1 to expand a program that gives about 40 businesses a 10 percent credit against their income taxes for investments in new property, including real estate. Manufacturing, transportation and telecommunications firms now qualify if they invest more than $50,000 and pay wages that are better than their industry's average.
The bill would eliminate the minimum investment requirement and expand the program to some 500 agriculture, mining, construction and retail businesses. The state would give up about $106 million in revenues over six years.
"The more tax breaks we give the businesses of Kansas, the more tax revenues flow into the state," said Sen. John Vratil, R-Leawood, who offered the amendment. "If that theory is true, then this is a sweetheart of a deal."
Finally, the bill contains a provision aimed at helping small businesses. State law says businesses don't have to pay property taxes on machinery and equipment if its original purchase price was less than $400. Under the measure, that threshold increases to $1,500. There are no firm estimates on how much businesses would save.