KEPC UPDATE: Feb 2, 2019

In this issue…
TAX: SB22 and Fed Tax Windfall
SPEND: Governor’s Budget Introduced in Committees
TRANSPORTATION: Final Report Issued
COMMERCE: Eco Devo Overview, HB 2006, HB 2043
SPORTS GAMING: Two bills introduced in Fed and State
MEDICAID EXPANSION: Governor unveils plan
MARKLEY MUSINGS: Things are starting to heat up

The Senate Select Committee on Federal Tax Code Implementation held hearings this week on SB 22. Tuesday, Wednesday, and Thursday of this week were dedicated to testimony from the Kansas Chamber, tax attorneys, and corporations potentially affected by the Federal Tax Cuts and Jobs Act (TCJA), specifically how multi-national corporations during business in the United States and state income taxed owed. TCJA moves business taxes from a worldwide taxation system to a territorial system. Kansas is a rolling conformity  state, meaning that any changes to the Federal Tax code will flow through to Kansas unless the legislature specifically alters statute (often referred to as “decoupling”). Regarding corporations, there are two primary issues:

965 Repatriation of Foreign Funds: the Federal Act provides for a one-time tax at preferential rates on deemed repatriation of certain deferred income of US Owned foreign companies. These preferential rates are anticipated to bring back $34 trillion into the U.S. Current Kansas law allows for a subtraction modification of 80%, so only 20% of the dollars would be taxed. SB 22 allows for a 100% modification. These repatriated funds are a one time thing.  They cannot be relied on as a future revenue source

Global Intangible Low-Taxed Income (GILTI): the new law significantly broadens the scope of foreign earnings that had been subject to current US taxation, effectively imposing a worldwide minimum tax on foreign earnings and subjects US shareholders of foreign corporations to current taxation on most earned income. It is intended to deter taxpayers from locating high-value activities and assets in low-tax countries. SB22 seeks to decouple Kansas from this provision.

Individual Tax Filers: TCJA nearly doubled the standard deduction rate for individual tax filers: married filing jointly increased from $13,000 to $24,000. It is anticipated that almost 88% of federal tax payers will take the standard deduction.  Again, Kansas is a rolling conformity state, so the legislature would actively have to decouple to allow Kansas filers to itemize deductions on their state income tax.

The fiscal note for SB 22 is significant. $192 million for FY2020, $113 million for FY2021 and $118 million for FY2022.

On Thursday, the Committee approved the bills passage as amended (technical amendment). The full senate is anticipated to debate SB 22 this upcoming week.

On Thursday, Governor Kelly’s budget was introduced in the Senate Ways & Means Committee and and House Appropriations Committee. Ways and Means Chair McGinn divided her committee into subcommittees to work the different portions of the budget.

The Transportation Task Force issued it’s final report on Monday. Key recommendations include:
Creation of a new, long-term plan of at least 10 years that includes funding for preservation, modernization and expansion of our transportation infrastructure;
Restoration of funding for preservation to protect previous investment in our transportation system;
Prioritization and completion of 21 modernization and expansion projects that were announced but unfunded in the previous T-Works long-term plan;
Amending statutes to authorize KDOT, working with the KS Turnpike Authority, to modify restrictions on what tolling can pay for and allow exploration of tolling on local projects with appropriate community input and support;
Adding an exemption in the tax lid statute for transportation purposes and modifications to demand transfers and consider other revenue options; and
Supporting KDOT’s current project selection process but adding additional merit for projects identified as priority corridors and/or include local participation.

On Monday, Acting Secretary of Commerce David Toland gave an overview of our state’s primary economic development tools: Promoting Employment Across Kansas (PEAK), High Performance Incentive Program (HPIP), Rural Opportunity Zones (ROZ), Sales Tax Revenue (STAR) Bonds, Angel Investment Tax Credits, and the Job Creation Fund.

Two bills regarding economic development and incentives heard this week:
HB 2006: requiring the Department of Commerce to compile and disclose on their website data related to various economic incentive programs. The Kansas Economic Development Alliance (KEDA) testified against the bill, citing confidentiality and unfunded mandate concerns.
HB 2043: requiring an inventory and evaluation of all major incentives, tax credits, and exemptions. 

The House Fed and State Committee heard testimony on two bills related to the expansion of sports gaming in Kansas:
HB 2032: Introduced by Representative Frownfelter, allows for expansion of sports betting solely at racing facilities
HB 2068: The Kansas Sports Wagering Act, Introduced by Representative Kessinger, allowing for the expansion of sports betting conducted by the Kansas Lottery, through lottery retailers, casinos and racetrack facilities managers. It also allows for sports wagering through the internet and mobile apps.

On Tuesday, Governor Kelly unveiled her plan for medicaid expansion. The proposal to expand to 150,000 Kansans, is almost identical to the plan that  passed the House and Senate two years ago, but was vetoed by then Governor Brownback.  The House failed to override the veto. The plan would cover Kansans under 65 years old who earn less than 133% of the federal poverty level.

First of all, can we all agree that GILTI is a horrible acronym for taxable income? Seriously. Things are starting to heat up as bills are making their way through the committee process.  It looks like there will be some floor action next week, especially in the Senate. One thing I know for sure, the significant pieces of legislation: tax reform, budget, education, Medicaid expansion, etc., will change and look much different when we get to the end of session. Thanks for allowing me to be your eyes and ears in Topeka.  Please call or email me anytime. Until next week.