Topeka While much has been written and said about the tax cuts signed into law by Gov. Sam Brownback, not much has been mentioned about a tax increase that is part of that legislation.
“Step one, what actually takes place on our proposal and what we put in, is actually a tax increase, and it’s a severance tax increase,” Brownback said recently.
The measure repealed the state’s 24-month severance tax exemption for gas wells and oil wells that produce more than 50 barrels of oil per day. Only production after June 30 is affected.
This is expected to generate additional severance tax revenue of $18 million in the current fiscal year and $45 million in the next, according to the Kansas Department of Revenue.
Despite the tax increase, there was little pushback from industry interests, who have not been shy in the past about lobbying against tax increases.
“We did support the governor’s tax bill, which had the severance tax provisions in it,” said Kent Eckles, a lobbyist with the Kansas Chamber of Commerce. “However, when we have an industry specific issue, we stay out of it, especially when we have members on both sides of the issue. In this case, we had big oil members opposed to those provisions while the smaller, independent producers were fine with the severance tax provisions.”
The Kansas Independent Oil and Gas Association maintained a neutral position, said the group’s president, Ed Cross.
Of the 2,200 oil and gas operators in the state, Cross said perhaps 50 would be affected by the changes.
“It did impact some, but for most of the small producers, it will not impact them,” he said.
Cross said he doesn’t expect the severance tax issue to slow growth in the industry in Kansas.
Kansas has seen an increase in oil production for five of the past six years.
“It’s a robust industry in the state of Kansas,” Cross said.
And Kansas officials are drooling over the potential economic impact of fracking and horizontal drilling in southern and western Kansas to revive an area that was tapped out by vertical drilling years ago.
“The potential economic benefits to Kansas could be significant, resulting in hundreds of wells drilled, billions of dollars in investment, thousands of jobs and industry activity in the Mississippian Lime Play for the next 20 to 30 years,” according to the Kansas Department of Commerce.
Opposition to the severance tax increase was probably muted by other provisions of the bill that will benefit businesses. The measure also eliminates state income taxes on nonwage income for the owners of partnerships, S corporations and limited liability companies.
Brownback has said that change will stimulate the economy like an adrenaline shot to the heart. Critics have said it is a tax giveaway that will deal a significant blow to state efforts to fund education and social services.
In addition, the new law will cut the individual income tax rates of 6.45 percent, 6.25 percent and 3.5 percent to just two rates at 4.9 percent and 3 percent.
Legislative research staff have said the total tax cuts will remove $4.5 billion from the state treasury over six years from a state budget that currently stands at approximately $6.6 billion per year.
House Democratic Leader Paul Davis of Lawrence has been a vocal critic of the tax cuts signed into law by Brownback. He said the severance tax increase is also off base.
“There are numerous oil and natural gas companies wanting to pursue increased exploration and drilling in Kansas. This is great news for the nearly 100,000 Kansans that are looking for jobs,” Davis said. “Unfortunately, the governor doesn’t seem to see it that way. He seems intent on creating more reasons for these companies to look to other states for business opportunities, and that just doesn’t make any sense to me.”