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Archive for Monday, February 12, 2007

Partisan battle shapes up on franchise tax

Republicans see economic benefit in eliminating tax; Democrats say cut jeopardizes funding obligations

February 12, 2007

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— House Republicans and Democrats are expected to clash today over legislation to eliminate the state's franchise tax.

House Speaker Melvin Neufeld, R-Ingalls, said the bill would be a boost to the economy, freeing businesses to expand.

"It will create more money in the long run," Neufeld said. The measure, which is scheduled for House floor debate today, would save businesses $44 million annually.

But Democrats say it's unwise to cut taxes so much because of previously committed spending priorities for schools, senior citizens, the state pension system and roads.

Gov. Kathleen Sebelius has proposed a smaller tax cut of $12.8 million, which includes reducing the unemployment insurance tax and corporate income tax, and removing the requirement for 16,000 small businesses to pay the franchise tax.

"Because of these critical obligations, complete elimination of the franchise tax on top of these other tax reductions simply isn't financially responsible," Sebelius said.

House Minority Leader Dennis McKinney, D-Greensburg, said the state also must maintain sound balances in case the economy falters.

He said tax cuts in the $12 million to $15 million range would be responsible. "If you get past that, it gets tough," he said.

But business groups and tax-cut advocates say the Kansas franchise tax is a disincentive for companies to grow. The tax is based on the value of a firm's assets.

Alan Cobb, state director of Americans for Prosperity-Kansas, urged lawmakers to approve the measure.

"A vote to eliminate the franchise tax will make Kansas more competitive," Cobb said.

The franchise tax repeal is HB 2031.

Comments

Keith 7 years, 10 months ago

How much would this cost the city if repealed, and how much would it save The World Company, Aquila, etc.

Jamesaust 7 years, 10 months ago

"But business groups and tax-cut advocates say the Kansas franchise tax is a disincentive for companies to grow."

So, the plan is to make the tax "flat," making size irrelevant? Or, the plan is to exempt small business?

Nope. Just make it all go away, along with the revenue. Geez, how much in campaign contributions did that cost?

Jamesaust 7 years, 10 months ago

Keith-the maximum tax is $20,000, so no one company is going to make out like bandits. That said, the tax brings in $44 million to the State, revenue largely impervious to economic fluctuations. So where is the replacement cash coming from? Or do we plan to cut Medicare, or schools?

Keith 7 years, 10 months ago

Jamesaust, you seem to have more info on this than I do, is there a separate city franchise tax too? I was under the (mistaken?) impression the city got the benefit of this tax.

yankeelady 7 years, 10 months ago

Why do I automatically feel that if the Republicans are for it, it won't be good for anybody except business? I'd hate to see CEO's getting smaller bonuses. It also makes me nervous when they start yapping along the lines of "let the market decide".

oldgoof 7 years, 10 months ago

Keith: The franchise tax being discussed here is different than what you are thinking. . The Kansas Corporation franchise tax is a tax levied upon Corporations formed under the Kansas Corporation Code or foreign (non-Kansas) corporations doing business in the state of Kansas as deemed by the code. (this also includes limited liability corporations, professional corporations, limited partnerships, etc.) The tax is levied on entities with a minimum $100,000 shareholders/partners equity. The tax is levied on the shareholders equity 'attributible to Kansas' at a rate of .125%. Maximum tax of $20,000. Can't remember the current minimum. . In my view, the tax is largely a hidden 'nuisance' tax. It is imposed at a rate small enough to not promote non-compliance. Many, if not most states, have similar levies, albeit with differing thresholds. . This is not related in any way to city "franchise taxes" imposed upon utilities (cable, electrical, gas, etc) for the privledge of using city easements to provide services.

oldgoof 7 years, 10 months ago

Jamesaust: To answer your q posted at 11:10, the reductions would come out of "ending balances" i.e. there are not revenue replacements or program reductions being proposed. . The point of the article....is that the cumulative effect of a bunch of similar 'tax reductions' during the Graves administration, caused the state budget cuts of circa 2001-2003, and helped create the situation with school finance which got us into the law suit.

oldgoof 7 years, 10 months ago

This tax is credited to the State General Fund of Kansas.

Keith 7 years, 10 months ago

oldgoof

Thanks for clearing that up for me.

Jamesaust 7 years, 10 months ago

Thanks oldgoof. I've been running around all day getting ready for some travel this week. I'd say you had it about right.

I'm a little too subtle - I didn't, and I can't believe any serious person would, believe that there was any plan to "make up" the lost revenue here. Its the old story: starve government and let the chips fall where they may.

Look, I'm all for low taxes but the proposal here is to eliminate an entire form of taxation. Different types of taxation fall upon different persons/business differently situated; there is no one "fair" type of taxation. That's why we have multiple types - in some hope of balance.

The closest similarity I can give for a franchise tax is a sales tax. You pay mostly on "doing business" and can only avoid it by doing nothing. I doubt there's more than 1 business in Kansas that is "disincentivized" from growing for fear of this tax. Eliminating it makes about as much sense as eliminating sales taxes and relying wholly upon income and property tax.

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