Tax Study Released Today

A new study on the ramifications of lowering the state income tax was released today at a statehouse news conference. Bernie Koch, executive director of KEPC, and study author Dr. John Wong presented findings at the statehouse today. The study finds that, for every 1 job created, 1.63 are lost due to study released today finds that a lowering of the income tax would result in a loss of 1.63 jobs due to a reduction in overall state spending. The study was commissioned by the Kansas Economic Progress Council.

The press release is available here, and the ful text of the study is available here.

Dr. Wong’s slide deck is available here.

KEPC UPDATE: Tax debate Wednesday, tax overview, budget agreement, bioscience hearing

In this issue…

  • Senate Cancels tax bill debate until Wednesday
  • The tax overview
  • Budget agreement tentatively reached
  • Senate holds Bioscience Authority hearing

 

Senate cancels tax bill debate until Wednesday

The Kansas Legislature went home Thursday and will return to Topeka Tuesday after a four-day Memorial Day weekend.

The Kansas Senate had been scheduled to debate a tax increase bill Thursday afternoon, but Senate leadership cancelled at the last minute, saying many amendments were requested by Senators. Majority Leader Terry Bruce (R-Hutchinson) said the staff needed time to write them. Bruce told reporters the debate will probably be held on Wednesday.

Also complicating the picture were graduations, weddings, and other spring events being held over the weekend.

Also, many legislators were forced out of their hotel rooms by the annual National Hot Rod Association Kansas Nationals at Topeka’s Heartland Park, a major annual sporting event.

The bill that was to be debated was Senate Substitute for House bill 2109.

Here’s what’s in the bill:

Amnesty – If certain delinquent taxes are paid in full between September 1 and October 15, penalties and interest would be forgiven. This procedure has yielded over $30 million for the state in the past, but it can’t be done too frequently. The amnesty is limited to liabilities incurred before December 31, 2013.

Sales and use tax – The rate for most purchases would increase from 6.15% to 6.5% on July 1.

Food sales tax – A lower sales tax rate of 6% would apply to food. Excluded items would include candy, dietary supplements, vending machine food, prepared food (restaurants), and soft drinks.

Motor fuel tax – The tax would increase by 5 cents a gallon. The additional revenue created would go to the state general fund, not the highway fund.

Cigarette and tobacco products – Cigarettes go up 50 cents per pack to $1.29. The tobacco products tax increases from 10% of wholesale price to 15% of wholesale. An inventory tax is established for all cigarette and tobacco products on hand as of July 1, 2015. It is 50 cents per pack for cigarettes and 5% on the wholesale sales price for tobacco products.

Motor Vehicle Tax – There are several changes to the motor vehicle tax:

  • Minimum tax for motorcycles jumps from $12 to $18. Current vehicles are grandfathered
  • Minimum tax for most passenger vehicles jumps from $24 to $36. Current vehicles are grandfathered
  • The depreciation rate on vehicles is “decelerated” creating more revenue
  • The 20% assessment rate is reduced from 20% to 12% over a four year period
  • Beginning in tax year 2017, vehicles begin a phase-in of paying the 20-mill school finance property tax levy from which they are now excluded

Income tax rates – 2015 rates are frozen at 4.6% and 2.7%. The trigger mechanism for future rate reductions beginning in 2019 is still in the law.

Itemized deductions – In this tax year, all itemized deductions are repealed with the exception of charitable contributions, mortgage interest, and property taxes paid. Mortgage and property tax deductions would only be 50% of what’s paid. Charitable giving remains fully deductable.

Business income exemption temporary repeal – The controversial 2012 zero income taxes for most businesses is repealed until tax year 2017.

Temporary credit – Replacing the business income exemption for two years is a tax credit equaling 1% of payroll for 2015 and 2% for 2016.

What the changes raise in Fiscal Year 2016:

  • Business income – $81.9 million
  • Sales and use tax – $134 million
  • Itemized deductions – $97 million
  • Amnesty – $30
  • Motor vehicle tax – $8 million
  • Cigarette tax – $40.390 million
  • Tobacco products – $2.847 million
  • 5 cent motor fuel – $81.955 million
  • Rate freeze – $19.9 million

Total for FY 2016: $495.992 million

 

The tax overview

Other tax items have gotten somewhat complicated. Here’s a very quick summary of what’s happened.

  • On Friday, May 15, the House of Representatives debated HB 2430, a tax bill, but failed to advance it to final action on a voice vote.
  • The House Taxation Committee held a hearing Wednesday on HB 2435, which removes the sales tax exemption for constructions projects of local government. No action has been taken.
  • House Taxation Committee began working on a new tax increase bill, HB 2434, this week. The committee held a lengthy hearing. The measure was amended into Senate Bill 31 and was scheduled to be worked further, but the meeting was cancelled. No House Tax Committee meeting has been held since.
  • A hearing was held Thursday on Senate Bill 309, which creates a 3.5% tax on insurance policies on the federal exchange. Senator Mary Pilcher-Cook (R-Shawnee) said it was an attempt to recoup costs borne by the state as the result of the implementation of the Affordable Care Act (Obamacare). Many insurance companies opposed the bill and no action was taken.
  • There continues to be much speculation about whether there are enough votes for any plan that increases taxes, cuts the budget further, or a combination of both.
  • As June approaches, the state comes closer to not having enough time to implement legislation by the beginning of the new fiscal year on July 1. Any bills that pass (including budget and tax increases) must be put into legal form by legislative staff, which can take several days before they can go to the Governor for his approval or rejection. The Governor’s action on those bills must be reported back to the legislature, and then published before they become law.

 

Budget agreement tentatively reached

The conference committee meeting on the FY 2016 and FY 2017 budgets reached a tentative agreement late Thursday afternoon. Staff says the report will be signed when lawmakers return next week.

Reports indicate the shortfall under the new agreement is about $380 million, down from the $406 million previously estimated. The $380 million now becomes the target for tax increase legislation.

The agreement does not include the previously debated freeze on tuition at Regents institutions. It does have a cap on tuition, pegged at the Consumer Price Index plus 2% each year.

Lawmakers also wrestled with the $30 million shortfall that developed over the break concerning the money expected to be raised by the 20 mill property tax levy for K-12 public schools. The $30 million is in the budget from the state general fund for FY 2016 and will be revisited next year for FY 2017.

 

Senate holds Bioscience Authority hearing

No action was taken this week after a Senate Ways and Means Committee hearing on Senate Bill 305, which eliminates the Kansas Bioscience Authority and transfers its functions to the Kansas Department of Commerce. No one will say where the bill originated.

Officials of the KBA and executives of companies helped by the authority testified against the measure.

KBA Director Duane Cantrell said the organization has been successful despite only receiving $23 million of the $140 million it was supposed to receive.

Cantrell said the Authority has grown assets by $28 million in the past two years. He added that abolishing the organization would eliminate $400 million in investment into the State of Kansas and would cripple investment momentum, shifting business to neighboring states.

“You cannot unplug this and simply plug it back in again at a later date and expect the light to come back on,” Cantrell told the committee.

The only proponent was former Brownback Budget Director Steve Anderson, now with the Kansas Policy Institute. Anderson said he opposes using tax dollars to fund public investment in private business.

KBA Chairman Dale Rodman (former Kansas Secretary of Agriculture) was blunt, calling the bill a grab for money.

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