Topeka Towing companies, self-storage operators and collection agencies pushed back Wednesday against a Kansas House plan that would levy sales taxes on their services as the Senate tax committee opened hearings on a bill just passed by the House on Monday that would repeal the sales tax exemptions that currently apply to their businesses.
At the same time, however, Republican leaders in the House said they are already working on a new tax plan that would include a different combination of service-based sales taxes along with income taxes to close the state's looming $890 million revenue shortfall.
In the Senate tax committee, the loudest protests against the House plan came from collection agencies who said taxing their services is not as simple as it sounds. That's because some agencies purchase debt from creditors and then keep all of what they're able to collect while others charge their clients a fee for the service.
In addition, they argued, one of the biggest segments of the collection industry involves medical debt, and much of that is owed to tax-exempt nonprofit health care providers. As a result, they said, much of the tax on collection services would come directly out of the agencies themselves.
"The cuts that I would have to make as a result of this tax would immediately cause me to downgrade everything that I do for my employees," Devon Haase Kim, CEO of the Lawrence-based firm Haase and Long told the committee.
Kim said her firm specializes in resolving medical debt, but that involves more than just collections. She said the firm also works to get debtors enrolled in Medicaid if they are able, works with hospitals to write down part of the debt as charitable care, and counsels individuals about how to manage their ongoing health costs.
Kim said Haase and Long employs 35 people in Lawrence and pays its employees a living wage, plus full health benefits and retirement contributions.
"These people are very important members of our community," she said. "We do good things in our community. We won't be able to continue to do that if this is passed."
Representatives from other collection agencies said the tax could drive them out of business because their clients could easily contract with agencies in other states — or even other countries — that do not tax their services.
Meanwhile, Tom Whitaker of the Kansas Motor Carriers Association testified on behalf of towing companies, arguing that a tax on that service would cost consumers more than they would save from the reduced food sales tax.
"This bill reduces the sales tax on food 1 percent, so if I spend $100, I'm going to save one dollar," he said. "But if I have a $100 tow bill, I'm going to pay, in Topeka, $9.15 more for that tow bill."
Whitney Damron, a lobbyist who represents the self-storage industry in Kansas, also argued that taxing the rental of self-storage units would be unfair.
"It's a real estate transaction, and historically the state of Kansas does not charge sales tax or a gross receipts tax on real estate transactions," he said. "When you buy a house, when you rent an apartment, when you rent a house, when you rent an office space, when you rent a mobile home site - all of these kinds of transactions are rental of real estate. When you rent a parking space, it's really no different than this situation here."
The proposed new service taxes are estimated to generate about $60 million a year in new revenue for the state. But as the bill is written, that gain would only last three years. The 1-cent cut in the food sales tax would take effect July 1, 2020, offsetting the sales taxes on services.
At the end of the hearing, though, Rep. Kristey Williams, R-Augusta, who sponsored the House amendment, said she and other Republicans had met with Department of Revenue officials since Monday to work on changes to the bill.
She said they would soon propose a new list of services to be taxed that would generate about $160 million a year and new language that would clarify how the taxes would be levied and collected.
Williams declined to disclose that list Wednesday, saying she had not yet discussed it with House Speaker Ron Ryckman, R-Olathe.
"It was never about finding $60 million or $100 million. It was about finding those line items, those individual (sales tax) exemptions that help broaden the base and bring more equity to our system," Williams said. "If it helps fill our budget gap as well, that's even better."
House Republican Leader Don Hineman, of Dighton, said negotiations are taking place behind the scenes on a comprehensive tax bill that would include both the repeal of sales tax exemptions for certain services and some kind of income tax plan, but he did not provide any other details of that plan.
Wednesday marked the 93rd day of the legislative session. Lawmakers have budgeted for a 100-day session, which would mean finishing all legislative business by next Wednesday, May 24. Both the House and Senate plan to work this Saturday, and possibly Sunday, in hopes of meeting that goal.