Senate begins work on new tax plan

Kansas Statehouse in Topeka, February 2014.

? The Senate tax committee went back to work Monday looking at new tax bills to close the state’s projected budget shortfalls for the next two years, starting with Gov. Sam Brownback’s plan that calls for about $200 million a year in new revenue, mainly through increases in tobacco and alcohol taxes.

But that won’t be the only tax bill the committee considers this week. Sen. Marci Francisco, D-Lawrence, formally introduced the Senate Democrats’ tax plan, and committee chairwoman Sen. Caryn Tyson, R-Parker, announced that a hearing on it would be held Tuesday.

That action came after a bill raising income taxes that Republican leaders in the Senate had endorsed was abruptly pulled from the calendar Thursday when support for it began to evaporate.

Senate leaders have said they will not consider any other legislation on the floor of the Senate until the chamber comes to a consensus on a tax bill and spending cuts to close the projected $320-$350 million shortfall in funding for the current fiscal year’s budget.

The governor’s tax plan would not touch the one item that most lawmakers seem eager to repeal, the so-called LLC loophole that exempts more than 330,000 farmers and business owners from paying taxes on certain kinds of business income, an exemption that critics have argued is unfair to wage-earners.

Revenue Secretary Sam Williams said that to address the “fairness issue,” the governor’s plan does call for raising the annual filing fee those entities pay to the secretary of state’s office to $200, instead of the $40 they now pay.

“This would allow doctors firms, CPA firms, lawyer firms to pay a per-partner fee for registration each year, and in lieu for that they get a tax-free environment to work in,” Williams said.

The increase in filing fees would raise an estimated $33.6 million a year, according to the Department of Revenue, while repealing the LLC exemption would raise an estimated $230 million a year.

The governor’s plan also calls for imposing income tax on what’s called “passive” income such as rents, royalties and other kinds of payments that some people receive, which would generate about $4.8 million a year.

“The governor believes very strongly that the more money we leave in the hands of our small businesses and our individuals, the better off we are,” Williams said.

The biggest portions of the bill, however, involve raising cigarette taxes by $1 per pack, generating $42.1 million a year, and doubling the state’s liquor enforcement tax to 16 percent of gross receipts, which would raise about $52.3 million a year.

The liquor enforcement tax applies to liquor and cereal malt beverages sold in retail stores, farm wineries and microbreweries, and liquor sold by distributors to drinking establishments and caterers.

Several public health and anti-smoking advocates spoke in favor of raising tobacco taxes, and some called for an even higher increase of $1.50 per pack, citing studies that show higher taxes on tobacco products encourage people to stop smoking and discourage teenagers from ever starting.

But groups representing convenience stores, retail liquor stores and liquor manufacturers spoke out against the bill, arguing it hurt their businesses, especially in border counties like Johnson and Wyandotte counties where consumers can easily drive across the state line to buy those products for less.

It wasn’t immediately clear Monday when the committee plans to pass out a new tax plan, or how many plans it might decide to send to the floor.

On Tuesday, it plans to take testimony on the Senate Democrats’ plan, which calls for repealing the LLC exemption, raising individual tax rates and reinstating a third tax bracket for individuals with incomes above $35,000, or $75,000 a year for married couples filing jointly. That plan would raise an estimated $1.2 billion a year in new revenue.

In addition, Sen. Vicki Schmidt, R-Topeka, introduced another plan Monday that calls for a different combination of tax rate changes and a third bracket, although she was unable to provide specific details Monday afternoon.

Meanwhile, Senate Majority Leader Jim Denning, R-Overland Park, announced from the Senate floor Monday that the original leadership bill that was pulled from the debate calendar Thursday has been sent back to the committee with recommended amendments.