GOP senator ‘100 percent confident’ Brownback will allow repeal of LLC tax loophole

In this file photo from June 3, 2015, Sen. Jim Denning, R-Overland Park, left, confers with Senate Vice President Jeff King, R-Independence, right, during the chamber's session at the Statehouse in Topeka.

? The soon-to-be majority leader of the Kansas Senate told an Overland Park audience Thursday that he is “100 percent confident” that Gov. Sam Brownback would allow lawmakers to repeal one of his signature tax policies this year.

Sen. Jim Denning, R-Overland Park, said he believes Brownback would not oppose a bill to repeal the so-called “LLC exemption” that allows more than 330,000 farmers and small business owners to avoid paying state taxes on income derived from pass-through entities such as limited liability companies, partnerships and sole proprietorships.

Denning was one of three lawmakers who spoke at a “Legislative Forecast Breakfast” at the Doubletree Hotel in Overland Park where an estimated 200 people attended. The annual event is sponsored by the law firm Lathrop & Gage.

Sen. Jim Denning

His comment was reported in a Twitter post by Rep.-elect Cindy Holscher, D-Overland Park, but Denning later confirmed it in an email to the Journal-World, saying it was based on his own assessment, not on anything Brownback himself had said.

“Just my personal confidence factor,” Denning wrote.

Holscher said in a telephone interview afterwards that the other two legislators who spoke at the breakfast, House Speaker-elect Ron Ryckman, Jr., of Olathe and Rep.-elect Patty Markley, did not echo Denning’s comment.

Kansas budget officials say the LLC exemption, which was part of the sweeping tax cuts Brownback championed in 2012, costs the state roughly $290 million a year, which would not be enough by itself to cover the long-term revenue shortfalls that Kansas faces.

Therefore, repealing that exemption would have to be one part of a larger tax and budget package. The question of whether such a bill would pass, fail or be vetoed would depend largely on what else is put into that package.

But it would represent a significant reversal of position for the Brownback administration which has steadfastly defended the LLC exemption, crediting it for sparking what they say has been a record number of new start-up businesses in Kansas.

Brownback’s office would not confirm or deny his willingness to repeal the exemption.

“Governor Brownback remains committed to supporting pro-growth tax policies that help to make Kansas the best place in America to raise a family and grow a business,” his spokeswoman Melika Willoughby said in an email statement. “The Governor is working on the budget and will make his recommendations to the legislature when they return in January.”

Denning served in the Kansas House in 2012 and was among the 64 members who voted in favor of the tax package. But he has said more recently that the intent of the Legislature at the time was to exempt only the income that business owners put back into the operation of their businesses, not the net profits they earn after expenses.

During the 2016 session, Denning pushed to either repeal or significantly amend the 2012 law, but the Senate never took up the issue. It was included in one version of a conference committee tax bill, but it was defeated first in the House, 45-74.

Fourteen Democrats, including many who had openly criticized the policy since its inception, were among the 74 lawmakers who voted no. Some of them said at the time that they voted no because they didn’t believe the bill would ever pass the Senate, and a yes vote only would have been used against them by Republicans in the 2016 campaign.