Lawmakers to take aim at business tax exemption in wrap-up session
photo by: Nick Krug
TOPEKA — The chairmen of the Kansas House and Senate tax committees said this week they intend to take up bills during the wrap-up session that would either repeal, or scale back, one of the 2012 tax cuts that exempts more than 330,000 farm and business owners from paying any income tax.
But it remains to be seen whether Republican leaders will allow either of the bills to be fully debated by the full Legislature or, even if either of them were to pass, whether Brownback will allow such a bill to become law.
Lawmakers return to the Statehouse on Wednesday for the start of what many will hope to be a short wrap-up session. But with the state facing an estimated $291 million revenue shortfall over the next 16 months, and with all 165 seats in the Legislature up for election this year, there is intense political pressure for lawmakers at least to take a vote on the issue.
“There’s pressure from both sides,” said Rep. Marvin Kleeb, R-Overland Park, who chairs the House Taxation Committee. “There are groups and individuals advocating both sides of the issue.”
Sen. Les Donovan, R-Wichita, who chairs the Senate Assessment and Taxation Committee, said he intends to hold a hearing Thursday on one bill that already has significant Republican support.
Of all the tax cuts lawmakers enacted in 2012, the one that has drawn the most attention is the one that completely exempts so-called “pass through” income derived from sole proprietorships, limited partnerships and limited liability corporations.
Senate Bill 508, which is backed by Senate Vice President Jeff King of Independence, along with Sens. Jim Denning and Greg Smith, both of Overland Park, would scale that exemption back so that 70 percent of that business income would be put back on the tax rolls.
Those supporters say that was the original legislative intent when lawmakers passed the tax cuts in 2012, exempting only what the federal tax code refers to as the “working capital” of those entities.
But Sen. Tom Holland, D-Baldwin City, said he sees little chance of Brownback allowing that bill to become law.
“I guess I’ll believe it when I see it,” he said. “He has so much personally invested, I just don’t see him dropping that.”
Donovan, who is retiring from the Legislature after this session, said he also plans to introduce a bill of his own, which he said would be broader than the other bill, and he predicted that other tax plans will be introduced as well.
“I anticipate that we’re going to have more than one hearing on tax issues before we go home,” he said.
Another bill pending in the House, H.B. 2444, by Rep. Mark Hutton, R-Wichita, would eliminate that tax exemption entirely, but would replace it with a dollar-for-dollar reduction in the state sales tax on food.
But Kleeb said that given the state’s financial condition, and the mood of many lawmakers in the face of the current budget crisis, it’s unlikely that the food sales tax provision of that bill will remain.
“After two days of hearings, the proponents of that bill were nearly unanimous that they would rather have the money go into the state general fund,” he said.
Kleeb did not guarantee that his committee would vote to move that bill to the full House during the wrap-up session. One particular reason is that House Speaker Ray Merrick, R-Stilwell, has indicated he doesn’t intend to work on any new legislation in the final days.
Rachel Whitten, Merrick’s press secretary, confirmed Tuesday that Merrick does not intend for the House to take up new legislation that would be open to full debate and possible amendments. That means it would only consider conference committee reports, or motions to concur or non-concur with bills sent over from the Senate.
House leaders have indicated they hope to complete the wrap-up session in as little as three to five days, but Sen. Donovan said he thinks it could be considerably longer.
“I have a different opinion (from the House) on that,” he said.