In this issue …

Senate tries to lure House with food sales tax cut

After several meetings of the Tax Conference Committee this week and a seeming deadlock over extending the temporary sales tax, the Kansas Senate tried a new approach Thursday evening.  They sent the House a bill that keeps the sales tax at 6.3%, but lowers the sales tax on food to 4.95%.

After three hours of debate, Senators passed the measure (HB 2084) by a vote of 24 to 18.  The bill originally had to do with tax credits for community services contributions.  It was gutted and the new language added that is basically what the Senate has offered in the past, with the exception of the food sales tax reduction.

By the year 2018, all itemized deductions except charitable are completely eliminated.  That includes the real estate mortgage interest deduction, a move that has been strongly opposed by the Kansas Association of Realtors.

The top income tax bracket is eventually reduced to 3.5%, while the bottom bracket is reduced to 2.5% (both by 2018).  There is no mechanism for totally eliminating the individual income tax after 2018.

The bill now goes to the Kansas House of Representatives where it’s unclear what will happen.  It is unknown whether House leadership will take the bill up and allow a vote, which is what the Senate wants.

Both chambers are holding off on passing a budget until a tax bill is passed.

The House goes in at 9 a.m., the Senate at 10:30.

As the legislative session drags on, some legislators are leaving due to previous plans made in anticipation of everything being done by now.  Each passing day finds several absent.

Senate Assessment and Taxation Committee Chairman Les Donovan (R-Wichita) has been a key negotiator for the Senate.  He left Thursday for a long-planned family event.

Senate leadership has indicated they are willing to work into the Memorial Day weekend, but several lawmakers are skeptical and believe the lawmakers will have to return to the Statehouse next Tuesday.

In this issue …

• Budget agreement reached
• Senate makes tax counter-offer

 

Budget agreement reached

House and Senate negotiators have reached an agreement on a budget, which is expected to be discussed and voted on in the Kansas House Wednesday afternoon.  The budget is now contained in Senate Bill 171, an education finance bill that has been gutted and the budget inserted.

The bill includes a 1.5% cut to higher education institutions and a slight reduction in the reduction in salaries and wages (from $34.7 million to $22.6 million from the State General Fund).

 

Senate makes tax counter-offer

The Tax Conference Committee met twice Tuesday.  The Senate made the House an offer.  The House is expected to make a counter-offer Wednesday morning at 9:30, when the negotiators meet again.

Here’s the Senate offer:

1. 6.25% sales tax – the current sales tax is 6.3% and is due to drop to 5.7% July 1.  The House had previously offered a 6.0% sales tax.  This keeps most of the current “temporary” sales tax, which the House leadership has objected to strongly.

2. All itemized deductions would be reduced on this schedule:

• 2013                25%
• 2014                45
• 2015                55
• 2016                70
• 2017                85
• 2018                100

3. The top income tax bracket would be reduced on this schedule:

• 2013                4.8%
• 2014                4.6
• 2015                4.5
• 2016                4.4
• 2017 & 18       3.5

4. The bottom income tax bracket would be reduced on this schedule:

• 2013                2.9%
• 2014                2.8
• 2015                2.7
• 2016                2.6
• 2017 & 18       2.5

5. Standard deduction would be $5,000 for head of household, $6,500 for married, beginning in 2013.

6. Under this Senate offer, ending balances in the state’s checking account are projected to be:

• 2013                10.1% of the general fund
• 2014                9.6%
• 2015                7.8
• 2016                7.2
• 2017                5.9
• 2018                0.6

Some notes of interest:

• This does not provide for a total elimination of the income tax.  The previous House and Senate plans had some mechanism to totally eliminate the income tax.
• The reduction in deductions (or haircut) does not match the reduction in income tax rates.  By 2018, most deductions are eliminated, but there is still an income tax.  Several groups will likely object.  The lead House negotiator, Rep. Richard Carlson, noted this was a mis-match.

 

The House negotiators want to meet again Wednesday morning at 9:30.  They say they will have a counter-offer.

In this issue …

• Taxes take back burner to budget
• The House tax proposal
• Bill eliminates joint committees on arts/economic development
• Kansas competitive on Tax Freedom Day

 

Taxes take back burner to budget

As the legislative veto session looks like it will be going into another week, negotiators are concentrating on the budget.  Tax legislation is moving to the back burner.

As of this writing, the Senate was convening at 10:30 Friday morning and the House at 10.  Senate Majority Leader Terry Bruce (R-Hutchinson) told Senators Thursday if budget negotiators come up with an agreement by then, it might be possible to work the budget Friday.  If not, it will be next week.

The budget conference committee met a few times Thursday and could meet late into the night.

The move from a tax emphasis to a budget focus seems to be a tactic by the Senate, which wants the House to move toward keeping more of the 0.6 cent sales tax due to go away July 1.  The House has already offered to go halfway and keep 0.3 cents, but Senate President Susan Wagle (R-Wichita) does not seem to think that’s enough, even though she has said it’s a good start.

By focusing attention on the budget first, the intention would be to demonstrate to House members the need to keep more of the sales tax.

Many legislators are frustrated by the seeming lack of progress.  Most have nothing to do.

Some are already leaving town for the weekend, voicing the general consensus that nothing will be accomplished this week.  Many are losing their rooms as graduations and a major race at Topeka’s Heartland Park force them to leave.

 

The House tax proposal

The tax stalemate seemed to be shifting somewhat after the tax conference committee met Wednesday and House Tax Chairman Richard Carlson (R-St. Marys) made this offer to the Senate:

1. The state sales tax due to drop by 0.6 cents would only drop to 0.3 cents.  This would put the state sales tax at an even 6 percent.

2. Partial restoration of the food sales tax rebate program (worth about $20 million) is offered.

3. Over a five year period, all itemized tax deductions would be reduced (the so-called haircut) by the following percentages:

• 2013 – 24%
• 2014 – 35%
• 2015 – 40%
• 2016 – 50%
• 2017 – 60%

4. No deductions would be allowed for gaming losses, beginning in 2013.

5. Income tax rates would be reduced as well in the future.

The top rates would be:

• 4.9 % in 2013 – 2014
• 4.8% in 2015 – 2016
• 3.8% in 2017 – 2018

The bottom rates would be:

• 3.0 % in 2013
• 2.7% in 2014 – 2015
• 2.25% in 2016
• 2.1% in 2017 – 2018

6. The Standard Deduction for Head of Household would be $5,000 and Married Filing Jointly at $6,500 in 2013 – 2018

7. A complicated formula for income tax reductions would kick in starting in 2019 when revenues come into the state over 2 percent.

8. A state general fund profile prepared by legislative staff shows the plan results in only a 0.2 percent ending balance in FY 2018.  That means the state would only have $16.3 million in the bank.

On Thursday, there was a rare House/Senate Republican caucus to discuss the tax impasse, but no action.

 

Bill eliminates joint committees on arts/economic development

Of possible interest to many is the elimination of several joint committees.  A bill to do so passed the Senate this week by a vote of 32 to 8.  It has previously passed the House in a different version by a vote of 91 to 32.

HB 2216 eliminates these joint legislative committees:

• Arts and Cultural Resources
• Children’s Issues
• Economic Development
• Energy and Environmental Policy
• Health Policy Oversight
• Legislative Educational Planning
• KPERs Study Commission

Many of these committees rarely meet during the legislative session but do meet during the interim between legislatures.  The savings from the legislation is hard to quantify.  In 2012, these committees cost the state general fund $35,331.  In 2011, the cost was $81,779.

 

Kansas competitive on Tax Freedom Day

Every year, the Tax Foundation, a national nonpartisan group, tells us when Tax Freedom Day is for each state.  That the day when the state’s average residents have earned enough money to pay federal, state and local taxes for the year.

Former Kansas Budget Director Duane Goossen has provided the information in his Kansas Health Institute blog, where he notes that Kansas’ Tax Freedom Day is April 9, which ranks the state #33.  That means the overall tax burden is lower than 32 other states!

Goossen notes Kansas beats most of the states without an income tax:

“Two-thirds of the no-income-tax states — Washington, Wyoming, New Hampshire, Florida, Nevada and Texas — came to their freedom day later than Kansas. Alaska, South Dakota and Tennessee were earlier.

“This suggests that even though a state does not have an income tax, other taxes may take its place in the overall tax burden that residents bear.”

You can read the blog and see the Tax Freedom Day map here.

In this issue …

• Statehouse is “like a tomb”
• The ALEC “compromise” that wasn’t
• Why the House may have the upper hand
• Economic Development Post Audit

 

Statehouse is “like a tomb”

Both the House and Senate met for only a short time Monday as the Kansas Legislature returned to the Statehouse for the 80^th day of the legislative session.  Legislative leaders had predicted it would be over by now, but the stalemate between the House and Senate continues over whether to continue the 0.6 cent temporary sales tax enacted by the 2010 Legislature.

The Governor and Senate want the increase while the House position is to let it expire in July, as scheduled.   While Republican leaders and the Governor reportedly continued to negotiate, the Capitol building seemed “like a tomb” according to one observer.  Another said lawmakers, staff, lobbyists, and reporters were all just waiting for that “puff of white smoke.”

 

The ALEC “compromise” that wasn’t

We’ve been hearing bits and pieces about a so-called “compromise” that may or may not have been discussed by Senate President Susan Wagle (R-Wichita) and Speaker of the House Ray Merrick (R-Stilwell).  The discussions, so the story goes, occurred at the Oklahoma City meeting of ALEC (American Legislative Exchange Council) at the conservative organization’s meeting May 2 and 3.

The alleged compromise:  phase out the 0.6 cent sales tax by 0.1 cent over a period of years.  That was said to be rejected by the Senate.

 

Why the House may have the upper hand

A growing theory among many at the Statehouse (and there’s a lot of time to sit around and conjecture) is that the House of Representatives may have the upper hand in the negotiations.

The scenario is this:  if the deadlock in negotiations continues, the House can simply vote to concur (agree) with the Senate version of the budget and then adjourn and go home.  The result would be a budget that is not supported by enough state revenue (because the sales tax will expire).  Governor Brownback would then be forced to make some tough decisions.

He could call the legislature back in special session, but the result could be the same.  The House simply adjourns.  With or without a special session, Brownback would then be forced to cut the budget himself to match revenues.  He could line-item veto appropriations and/or he could use the unique Kansas budgetary tool known as the allotment system.

Allotments may be implemented by the Secretary of Administration concerning “any state agency” when “necessary or beneficial to the state.”

The law also states that when revenues are “likely to be insufficient to cover the appropriations made against such general fund or special revenue fund,” the Secretary of Administration can “inaugurate the allotment system so as to assure that expenditures for any particular fiscal year will not exceed the available resources of the general fund or any special revenue fund for that fiscal year.”

In other words, the Governor would be forced to cut the budget himself, a prospect he probably does not relish.

Nobody wants the acrimony such a scenario would cause, much less that headlines, but it’s a possibility.

Also, the prospect of all of the House work on the budget going away, would be a strong disincentive for the House to concur and adjourn.

 

Economic Development Post Audit

Local chambers of commerce and economic development organizations will be contacted for input as the Legislature’s Division of Post Audit works on an audit of economic development programs in the state.

Approved by the Legislative Post Audit Committee on May 10^th, these are the questions the audit will seek to answer.  Work on the first two questions is already underway.

1.  What economic benefits has Kansas realized as a result of the PEAK and HPIP tax incentive programs?
2. Does the Department of Commerce adequately enforce performance clauses for economic development incentive programs?
3. Which programs and incentives do companies and other stakeholders think are most useful in enhancing Kansas’ economic development?
4. Does Kansas have the modern economic development programs and tools necessary to succeed in today’s highly competitive global economy compared to other states?
5. Has the implementation of major Kansas economic development programs been successful?

The Post Audit Division estimated the complete audit would be ready in April of 2014.

However, since the audit can be divided into several reports, lawmakers will be able to get the audit’s results as they become available.

In this issue …

• Progress slow on tax plan and budget
• Op-ed:  sales tax will affect business

 

Progress slow on tax plan and budget

The Kansas Legislature returned to Topeka Wednesday but there has been little visible progress on taxes and the budget.  The stalemate between the House and Senate on income taxes continues, which in turn delays action on the Fiscal Year 2014 budget.

The Senate version of tax legislation keeps the 0.6 percent temporary sales tax enacted in 2010.  It is due to expire in July.  The Senate version of the budget depends on the sales tax extension.

The House version of tax legislation allows the tax to expire and does not depend on it for the budget.

There have been no meetings of the conference committees on tax or budget which are charged with finding common ground on legislation to end the session.  Instead, it appears the heavy negotiating is taking place behind closed doors between Governor Sam Brownback, Senate President Susan Wagle (R-Wichita) and House Speaker Ray Merrick (R-Stilwell).

House Taxation Committee Chairman Richard Carlson (R-St. Marys) is quoted in media reports as saying the House has made an offer, but has received no response from the Senate.

The lack of progress makes it certain that lawmakers will be back next week after taking the weekend off for Mothers’ Day.

If there is a deal, there are several bills that have passed at least one chamber that could be in play.

Here are some of them:

• Sub. For SB 165 – Property tax abatements when there is a disaster
• SB 72 – Property tax exemption s for health clubs
• SB 231 – Expanding the Rural Opportunity Zone Program (ROZ) to 23 additional counties
• HB 2047 – Requirements for local governments when property tax valuations increase
• HB 2267 – Expansion of HPIP (High Performance Incentive Program) to certain animal production and aquaculture businesses.  It also changes the investment threshold for HPIP qualification in urban areas to $50,000 from a million dollars (which is what it used to be)

There are other bills also in play that have passed either the House or Senate, but not both chambers.

But until some agreement is reached by leadership and the governor, the phrase of the day is, “Hurry up and wait!”

 

Op-ed:  sales tax will affect business

On Thursday of this week, the Wichita Eagle published an op-ed authored by me that attempts to talk about something new that has rarely been discussed during the session concerning tax policy.  Here it is:

Ignoring the sales tax burden on business

by Bernie Koch

In the Kansas Legislature’s debate over extending the temporary state sales tax in Kansas, the impact on business has been largely ignored.

There’s a broad assumption that replacing income taxes with consumption taxes is tolerable, and although it has a negative effect on those with less income, it does not influence business.

This is not true.

The latest Council on State Taxation annual report on state and local taxed paid by business says that in Kansas, 44 percent came from property tax and almost 25 percent from sales tax.  Only about 7 percent of all Kansas local and state taxes paid by business were through individual income taxes.

The nonpartisan Tax Foundation’s Location Matters Report consistently faults Kansas for “one of the highest property tax burdens in the nation along with a top-10 sales tax burden.”

Income taxes aren’t mentioned as an obstacle.

Another red flag for the sales tax popped up in the November 2011 study of several states in the region by Ernst & Young for the Arkansas Chamber of Commerce.  The study concluded Kansas has the 2^nd highest effective tax rate on research and development firms in the region (12 percent) while the effective tax rate on business services was nearly 20 percent.  The culprits are sales and property taxes.

In fact, the Arkansas Chamber study indicates that 55 percent of the local and state tax burden on business services in Kansas comes from sales tax!

The report says this about all of the states in the region: “Sales taxes on business purchases of capital and operating goods and services generally impose higher business tax burdens than the corporate income tax and may approach the level of the property tax burden.”

Why no outcry?  Business property and income taxes draw more notice because they are normally paid in a lump sum.  The sales tax is collected in hundreds or thousands of transactions that may rarely be tracked by a company.

Different types of business have different mixes of tax liability.  In Kansas, manufacturing, agriculture, and large economic development projects receive sales tax exemptions, but the majority of small and medium firms do not.

It’s these companies that will bear much of the burden of financing local and state government if Kansas shifts its financing from income to sales taxes.

In this issue …

• Legislature returns Wednesday
• Noted economist DeLong criticizes Brownback income tax plan
• Is this really necessary?
• North Dakota cuts property tax, not income tax
• Governor signs bills

 

Legislature returns Wednesday

The Kansas Legislature returns to Topeka on Wednesday of this week, with the House and Senate still apparently deadlocked on a budget and whether to extend the temporary sales tax due to expire in July.

Governor Sam Brownback wants the 0.6 cents extended to stabilize the budget as much as possible.

The Senate budget has a two percent reduction, while the House cut is four percent.   The Senate tax bill extends the sales tax, while the House bill does not.  If there has been movement by either side, it is not apparent.

 

Noted economist DeLong criticizes Brownback income tax plan

One of the most well-known economists in the U.S. has weighed in on Governor Sam Brownback’s plan to eliminate the individual income tax.  J. Bradford DeLong, economics professor at the University of California-Berkley, was quoted in a recent National Public Radio story about the tax debate in Kansas, calling the Brownback plan flawed.

“That produces a relatively low-wage form of economic development.  That’s attractive to those who own companies, but not so attractive to people who don’t own companies,” said DeLong.

The NPR story quotes DeLong as saying the Brownback model, “ is based on a formula that works in Texas and Florida.  But Kansas has neither Texas’s oil nor Florida’s tourism, and even if it does work, Kansans might not like it when they start to see certain services disappear.”

DeLong, along with former Harvard President and Treasury Secretary Lawrence Summers, authored an economic report that helped convince policymakers in Kansas, Iowa, and Ohio to eliminate the property tax on machinery and equipment.  Their study looked at equipment investment in dozens of countries around the world over a 25 year period, concluding that it resulted in economic growth and strong social benefit.

 

Is this really necessary?

Meanwhile, former Kansas Budget Director Duane Goossen has an analysis on his blog that questions whether Kansas really needs a tax plan, at least in the short term.

Goossen is Vice President for Fiscal and Health Policy at the Kansas Health Institute.

His analysis follows the latest consensus revenue estimates and concludes Kansas can do without an income tax cut and still have a $162 million ending balance in FY 2014.  That’s only 2.6 percent, not the 7.5 percent target, but it’s not in the red.

Goossen does say FY 2015 looks like a deficit year with a negative $155 million ending balance.

He says, “Until revenue and expenditures match up, the financial problems that Kansas policymakers face will not go away. But by using the existing bank balance and transfers from other funds, policymakers have the option of delaying action on a tax plan for one year.

“A delay carries risk. Revenue might not come in as planned or some of the proposed transfers may not work, leaving the state in an even more vulnerable position.

“However, a delay could allow the Legislature to end this legislative session in a timely way and provide more time to consider the best path to a workable and fair tax policy.”

You can read Goossen’s analysis here.

 

North Dakota cuts property tax, not income tax

What do you do in a state when you’re flush with money from an oil boom and you have the fastest economic growth and employment growth in the United States?

Cut the income tax?  No, North Dakota has gone in a different direction.

The state’s legislature has ended its session, the longest in modern history, by enacting over $850 million in property tax relief!  $200 million of the tax relief flows through a state-paid tax credit.  The rest comes by providing $650 million additional to K-12 education funding.

 

Governor signs bills

Here are some of the bills of note that have been signed by Governor Brownback since the legislature adjourned April 5.

Turnpike (HB 2234)  -  The bill names the KDOT Secretary the director of operations of the Kansas Turnpike Authority, responsible for the daily administration of the toll roads, bridges, structures and facilities of the Turnpike.  The measure says tolls or other revenues cannot be used in ways other than those established in current law.  However, it allows the temporary transfer of personnel, property, and equipment from the Turnpike to KDOT and KDOT to the Turnpike.

Longtime turnpike Manager Mike Johnston announced his retirement after the bill was passed.  Probably not related, but we also noticed the McDonald’s at the Matfield Green rest stop has closed.

Income tax trailer bill (SB 83) – This is the clean up to last year’s quickly-passed income tax cut.  It clarifies several problems in the bill and includes several other tax bills discussed by this year’s legislature.  Some of them include the following:

• The bill increases the service fee assessed to set up an installment payment plan for delinquent tax liability in excess of 90 days (from $10 to $25).
• The 50-barrel-per-day tax threshold for the new pool severance tax exemption is clarified.
• The “click-thru” nexus provisions relating to sales and use taxation are implemented.
• A retroactive property tax exemption for new auto manufacturing property is enacted, generally applying to the General Motors facility in WyandotteCounty.
• All taxing authorities can now request Pooled Money Investment Board (PMIB) loans when taxpayers have prevailed in assessed valuation challenges involving more than 5 percent of total countywide valuation.
• Other sections clarify procedures for valuation hearings at the Court of Tax Appeals and procedures for correction of errors.
• Watercraft property taxation is reduced from the current 30 percent assessment level to five percent by tax year 2015 and afterward.  However, the tax would never fall below $12 on a watercraft.

Restraint of Trade Act amendments (SB 124) - The bill was the result of a Kansas Supreme Court decision in the O’Brien v. Leegin Creative Leather Products case, where the court overturned the practice of certain price controls.  In the case of Leegin, its Brighton line of leather and jewelry products cannot be carried by a retailer unless they agree to Brighton’s pricing.

The result has been to call into question many Kansas business practices based on similar agreements, particularly for agriculture.

Workers Comp Administrative Law Judges (SB 187) – The method of replacing Workers Compensation Administrative Law Judge Nominating and Review Committee and the Work Comp Board Nominating Committee is changed.  A new entity is created: The Workers Compensation and Employment Security Boards Nominating Committee.

Employment Security (HB 2105) – Changes employment security laws concerning employer contributions, eligibility for unemployment benefits, as well as the administration of the system by the Kansas Department of Labor.

In this issue …

• New revenue estimates due Friday
• Texas on the Brink
• Louisiana income tax cut is dead
• Higher education road trip

 

New revenue estimates due Friday

New Kansas consensus revenue estimates are due Friday of this week and they will play a part in budget and tax deliberations when the legislative veto session begins May 8^th.  There’s nervousness about revenues that centers around what happened in March.

The Kansas Revenue Department reported collecting about $364 million in March, but expected over $420 million.  That $56 million gap is being blamed on the problems Congress has had on fiscal matters, which forced some filing deadline delays.  The result has been later tax collections in Kansas than anticipated, or so the experts say.

When the state and university researchers and economists meet to discuss their estimates, they will have the benefit of knowing revenue collections through the April 15 income tax deadline.  Their estimate is what the legislature must use (by law) to build the FY 2014 budget.

At their last meeting in November, the estimate for FY 2014 was $5.464 billion.  That’s 11.4 percent below the FY 2013 estimate.  The dramatic drop was due to last year’s income tax cuts along with the scheduled reduction in the Kansas sales and compensating use tax rates.

 

Texas on the Brink

A group of Texas legislators known as the Legislative Study Group has released its Sixth Edition of “Texas on the Brink,” a periodic report on the Lone Star State’s rankings on public policy issues.

The report is not good news for Kansans who point to Texas as a beacon of economic activity due to the lack of an income tax.

The report says, “In Texas today, the American dream is distant.  Texas has the highest percentage of uninsured adults in the nation.  Texas is dead last in percentage of high school graduates.  Our state generates more hazardous waste and carbon dioxide emissions than any other state in our nation.  If we do not change course, for the first time in our history, the Texas generation of tomorrow will be less prosperous than the generation of today.”

Among the state rankings for Texas in the report:

• Percentage of Population Graduated from High School: 50th
• Percentage of Uninsured Children: 2nd
• Percentage of Children Living in Poverty: 7th (tied)
• Percentage of Population Uninsured (Health insurance): 1st
• Average Scholastic Assessment Test (SAT) Combined Scores: 47th
• Percent of Population with Food Insecurity: 3rd
• Average Credit Card Debt: 46th
• Percent Living Below Federal Poverty Level: 8th
• Median Net Worth of Households: 44th
• Retirement Plan Participation (Age 21-64): 46th

 Read the entire report here.

 

 

Louisiana income tax cut is dead

Louisiana Governor Bobby Jindal’s call to eliminate the Louisiana income tax is dead in the water.  Republican legislators are concerned about the budget implications of eliminating state income taxes and how to offset lost revenue.

Newspaper reports say it appears there is no possibility tax repeal could be successfully revived before Louisiana ends its legislative session in June.  The House Ways and Means Committee has indefinitely deferred all House tax repeal bills.

Governor Jindal, often mentioned as a possible Republican presidential candidate in 2016, was one of a host of Governors who pointed to last year’s Kansas income tax cuts as a reason for their states to cut income taxes.

In Oklahoma, income tax cuts are still alive, but the Speaker of the House is talking about delaying action until next year.  The proposed cuts are very small.  The Oklahoma Senate proposes cutting the top rate from 5.25 percent to 4.95 percent, beginning in 2015.

Meanwhile, Missouri is also wresting with smaller income tax cuts as well as a sales tax increase.  A House committee endorsed a bill to slowly reduce rates by two-thirds of a percent.  The Senate passed a three-quarters of a percentage cut.  The House Ways and Means Committee wants a six-tenths of a cent sales tax increase.  Some of it is earmarked to roads and mental health.  The Missouri Senate passed a half cent sales tax increase.

 

Higher education road trip

Governor Sam Brownback plans to use the bully pulpit to support keeping the 0.6 cent sales tax increase slated to go away in July.  Earlier this week, he announced he will be touring the state with a message that funding to Kansas universities, community colleges and technical institutions is in trouble without the sales tax component.

The Kansas Senate has passed legislation keeping the sales tax increase (passed in 2010).  The House does not continue the sales tax increase.  The House budget cuts four percent from higher education.  The Senate budget cuts two percent.

The Governor is tentatively scheduled to visit the following campuses:

• April 22nd – Wichita State University and Butler Community College
• April 23rd – Washburn University/Washburn Institute of Technology
• April 24th – Pittsburg State University
• April 25th – University of Kansas School of Medicine and Kansas City Kansas Community College
• April 26th – Emporia State University
• May 6th – Kansas State University

Meanwhile, University of Kansas Chancellor Bernadette Gray-Little says proposed cuts by the House could result in significant reduction of programs for medical students.  Possible actions could include closing the School of Medicine at Salina, reductions in nursing students and medical resident positions at both Kansas City and Wichita, and possible nonrenewal of the National Cancer Institute designation for K-U.

The Chancellor’s information was presented this week at a meeting of the Kansas Board of Regents.

The K-U medical school reductions would likely have a strong negative impact on health care for rural areas of Kansas.

In this issue …

• Lawmakers take a long break
• Income tax trailer bill passes Legislature
• House rejects Senate tax fix
• Budget is unfinished
• Turnpike bill passes
• Rural Opportunity Zones
• Restraint of Trade
• Education reforms
• Bills that “appear” dead 

Lawmakers take a long break

The Kansas Legislature adjourned late Friday evening with plans to return to Topeka on May 8^th for the annual veto session.  Lawmakers failed to pass a budget prior to leaving and did not agree on how to approach further cuts to income taxes.

 

Income tax trailer bill passes Legislature

Senate Bill 83 is on its way to Governor Brownback for his signature.  It’s the cleanup of last year’s income tax cuts that were passed with several technical problems.  In addition to the technical problems, some other tax items were added to the bill.

• The bill increases the service fee assessed to set up an installment payment plan for delinquent tax liability in excess of 90 days (from $10 to $25).
• The 50-barrel-per-day tax threshold for the new pool severance tax exemption is clarified.
• The “click-thru” nexus provisions relating to sales and use taxation are implemented.
• A retroactive property tax exemption for new auto manufacturing property is enacted, generally applying to the General Motors facility in Wyandotte County.
• All taxing authorities can now request Pooled Money Investment Board (PMIB) loans when taxpayers have prevailed in assessed valuation challenges involving more than 5 percent of total countywide valuation.
• Other sections clarify procedures for valuation hearings at the Court of Tax Appeals and procedures for correction of errors.
• Watercraft property taxation is reduced from the current 30 percent assessment level to five percent by tax year 2015 and afterward.  However, the tax would never fall below $12 on a watercraft.

Read a summary of the bill.

 

 

House rejects Senate tax fix

Despite meetings of House and Senate negotiators, there is still no agreement on a unified bill to cut more Kansas individual income taxes and how to handle last year’s big cuts.  Senators have passed a measure that retains the 0.6 cent sales tax which is scheduled to go away in July.

The House sent a strong message Friday night on the sales tax extension that sounded like “hell no!”

Representative Nile Dillmore (D-Wichita) made a motion to adopt the Senate’s version of more income tax cuts, but then voted against the Senate bill, along with everyone else in the House.  The vote was 0 to 120.

Some had predicted the end game would be to have the House adopt the Senate plan.  This week, Senator Anthony Hensley (D-Topeka), the Senate Minority Leader, once again predicted the House would adopt the Senate proposal to keep the sales tax.

The House version would force deeper budget cuts.

 

Budget is unfinished

The major work of any legislative session, passing a budget, is still unfinished.  Negotiators from the House and Senate seem to be moving closer to Governor Brownback’s position on keeping higher education spending flat.

The Senate budget has a two percent reduction, while the House cut is four percent.  Before leaving Friday, the House proposed taking $30 million from highways to prevent the higher education cuts.  The Senate agreed, but then withdrew that agreement.  Senator Ty Masterson (R-Andover), the Chairman of the Senate Ways and Means Committee, said he wanted to take a closer look at the proposal.

 

Turnpike bill passes

The bill that started out merging the Kansas Turnpike Authority with the Kansas Department of Transportation has passed the Legislature and is on its way to Governor Brownback.  It names the KDOT Secretary the director of operations of the Turnpike, responsible for the daily administration of the toll roads, bridges, structures, and facilities of the Turnpike.

House Bill 2234 also says the Turnpike cannot use toll or other revenues in ways other than those established in current law.  However, the bill allows the temporary transfer of personnel, property, and equipment from the Turnpike to KDOT and KDOT to the Turnpike.

 

Rural Opportunity Zones

Last week, the Kansas Senate passed SB 231, which adds 23 additional counties to the list of counties designated as Rural Opportunity Zones (ROZ).  The bill now resides in the House Taxation Committee.  The new counties are basically those with populations of 15,000 or less, plus Neosho County.

Individuals who relocate from outside of Kansas to a ROZ county have the opportunity to participate in a student loan forgiveness program and receive a 100 percent Kansas income tax credit through tax year 2015.

 

Restraint of Trade

The bill clarifying the Kansas Restraint of Trade law (SB 124) has passed the Legislature and is on its way to Governor Brownback.

The bill was the result of a Kansas Supreme Court decision in the O’Brien v. Leegin Creative Leather Products case.  The court overturned the practice of certain price controls.  In the case of Leegin, its Brighton line of leather and jewelry products cannot be carried by a retailer unless they agree to Brighton’s pricing.

The result has been to call into question many Kansas business practices based on similar agreements, particularly for agriculture.

According to the Conference Committee Report Brief:

“The bill would create a new section that would declare the purpose of the new section and the amendments to existing sections is to clarify and reduce uncertainty or ambiguity in the application of the KRTA and applicable evidentiary standards to certain business contracts, agreements, and arrangements that are not intended to unreasonably restrain trade or commerce and do not contravene public welfare.”

 

Education reforms

Some of the major education reforms planned by legislative leadership appear to be stranded and unable to pass the 2013 Legislature.  They include expanding charter schools and rejection of the “Common Core” curriculum reforms.  Limitations on teachers’ collective bargaining rights also stalled.

Governor Brownback’s “Kansas Reads to Succeed Act” had a major facelift.  A conference committee report has been adopted by the Kansas Senate, but the House has yet to act on it.

HB 2140 provides mandatory retention of some first-grade pupils (not third grade, as the Governor had proposed).  It also establishes a grant program and task force to develop best practices in reading instruction.  An incentive program rewards the top 100 schools that demonstrate improvement in fourth grade reading.

The mandatory retention is not the universal consequence Governor Brownback wanted.  Beginning in school year 2016-2017, certain school boards would be required to adopt a policy prohibiting promotion from the first to second grade of pupils who score at the lowest achievement standard on state reading assessment or an alternative assessment.  There appear to be exceptions to holding the student back.

 

Bills that “appear” dead

The fixtures bill (HB 2285) appears dead for the session.  That’s the measure that attempts to define machinery and equipment and fixtures.  It’s the result of a Montgomery County appraisal involving a refinery.

The lobbying reporting bill (HB 2141) is probably dead for the session, but is likely to come up in future years.  It would require public entities that spend money that ends up paying for lobbying to report that spending.

We say these bills “appear” dead because we remember something former Kansas Senator Phil Martin (D-Pittsburg) used to say:  “When I die, I hope I’m in the Statehouse.  Things have a way of coming back to life in that building.”

In this issue …

• Income tax trailer bill agreement reached
• House will make income tax offer Wednesday
• Bill hearings on eliminating corporate income tax

 

Income tax trailer bill agreement reached

Kansas Senate negotiators have accepted an offer from the Kansas House involving technical clean-up to last year’s hastily passed income tax legislation.  That legislation included problems with “tax basis” and the unintended consequence of taxing distributions to stockholders of bank holding companies.

The clean-up is included in Senate Bill 83.  A conference committee report has been signed and the bill is expected to be voted on in the House of Representatives on Wednesday, according to Rep. Tom Sawyer (D-Wichita) a member of the conference committee.

As we reported last week, there are six bills that have been added into this one bill, in addition to the technical items.

You can read the legislative staff’s description of what’s in the agreement by clicking on this link to the conference committee report brief:

http://www.kslegislature.org/li/b2013_14/measures/documents/ccrb_sb83_01_apr1.pdf

Helping to drive movement on the technical cleanup is the looming April 15 income tax deadline.  Taxpayers wishing to plan for 2013 taxes need to know how to plan for the first estimated tax payment for 2013, which is also due April 15.

 

House will make income tax offer Wednesday

The Chairman of the House Taxation Committee, Representative Richard Carlson (R-St. Marys) said he will make the Senate an offer on an income tax bill at a meeting of the conference committee Wednesday afternoon.  That meeting is scheduled to begin at one o’clock.

The committee met Tuesday afternoon and briefly mentioned the differences between the House and Senate versions of the legislation, designed to fill the big budget hole left by last year’s individual income tax cuts.  The Senate version keeps the 0.6 cent sales tax, due to expire July 1.  Governor Sam Brownback also wants to keep it.  The House version lets the sales tax expire.

Although Senate leadership has publicly expressed a desire to have budget and tax bills passed by the end of this week, that possibility appears highly unlikely at this point.

The committee also talked about some other tax bills.

Senate Assessment and Taxation Chair Senator Les Donovan (R-Wichita) said the conference committee might have to “sit on that a bit,” referring to House Bill 2267 and its $4.78 million fiscal note.  The bill applies the HPIP (High Performance Incentive Program) to some agriculture-related business.  It also reduces the investment necessary to qualify for HPIP in urban counties from a million dollars to $50,000.

Tentative agreement seemed to be reached on Senate Bill 165, which allows counties to exempt property taxes on disaster-stricken property.  The bill merely allows counties to take action and does not require them to do anything.  Counties could grant property tax abatements or credits to owners of homesteads destroyed by earthquake, flood, tornado, fire, storm, or other event that the governor has declared a disaster.

The bill is retroactive to 2012.  There would be a two-year sunset on the bill and a recommendation for an interim committee study to see how it works.

 

Bill hearings on eliminating corporate income tax

During this busy last week of the regular legislative session, it’s unusual for committees to hold hearings on bills because they are busy with conference committees and debating on the House and Senate floors.  However, it is noteworthy that the Senate Assessment and Taxation Committee is holding two hearings Wednesday morning.

Senate Bill 240 buys down the Kansas corporate income tax in future years by eliminating a number of tax credits, including HPIP, Venture Capital, Research and Development, telecommunications, and environmental compliance.

Senate Bill 239 also buys down the Kansas corporate income tax rate in future years.  It uses a trigger mechanism that kicks in when corporate income tax receipts exceed 2 percent from one year to another.

In this issue …

 

• Lawmakers break before final week
• Conference committee begins tax tango
• House makes offer on tax clean-up
• Budget conference meets
• Turnpike/KDOT merger moves forward
• Local government must report lobbying
• Restraint of Trade makes a comeback
• HPIP expansion to agriculture passes House

 

Lawmakers break before final week

Most Kansas legislators were taking a long weekend, with the House and Senate taking Thursday and Friday off prior to the last week of the regular legislative session.  The only official meetings at the end of the week were conference committees negotiating the differences between House and Senate bills.

Next week is expected to be a long one with first adjournment scheduled for April 5^th.  The veto session is scheduled to begin May 8^th.

 

Conference committee begins tax tango

Negotiators on taxes met twice this week before agreeing to come together again sometime next week.  There has been no progress on reconciling differences between the House and Senate over filling the big budget hole caused by last year’s income tax cuts.  The Senate version keeps the 0.6 cent sales tax, due to expire July 1.  Governor Sam Brownback also wants to keep it.  The House version lets the sales tax expire.

House Taxation Committee Chairman Richard Carlson (R-St. Marys) told Senate Assessment and Taxation Committee Chairman Les Donovan (R-Wichita) “There is some room for us to talk,” but keeping the full 0.6 cents would not be accepted by the House.  Carlson also said the House felt very strongly about their two percent trigger mechanism to eventually eliminate income taxes versus the Senate’s method of “simply cutting taxes in the future with no way to pay for it.”

Donovan pitched that a budget is not possible without the sales tax component.

 

House makes offer on tax clean-up

During those meetings, the House made an offer to the Senate, involving six bills, but they do not involve the heavy lifting of finding revenue to fund the state budget in the future.   This offer involves technical clean-up to last year’s flawed income tax legislation.

Donovan noted that it’s only a few weeks before income taxes for 2012 are due, and many accountants and businesses do not know how to plan for 2013 taxes without the technical clean-up legislation.

Here’s the offer as we understand it.  Several bills will be inserted into Senate Bill 83.  That bill originally had to do with a minor delinquent tax matter, but the House inserted the technical clean-up language that corrects problems with the 2012 income tax cut legislation.  It clears up the “tax basis” problem and makes it understood that stockholders of bank holding companies are not to be taxed on distributions.

Other items that would be added to the bill:

• House Bill 2103 is the “click-thru” nexus bill.   This is legislation involving who must pay sales taxes in the state.  It’s being adopted in many states as part of the latest initiative to level the playing field between online retailers and bricks and mortar retailers.
• Senate Bill 235 is essentially a bill for the General Motors plant in Kansas City.  It provides a retroactive property tax exemption for all new auto manufacturing property added by qualifying manufacturers.  The exemption would be for a ten year period.  GM would be required to make all payments in lieu of taxes to local governments.  The agreements are already in place.
• Senate Bill 222 authorizes local governments to request loans from the Pooled Money Investment Board to pay for taxpayer refunds.
• House Bill 2042 makes several changes to property tax valuation and administration.  It was requested by the Kansas County Appraisers Association.  The bill clarifies that during valuation hearings at the Court of Tax Appeals, valuations by county appraisers are presumed to be correct with regard to leased commercial and industrial property unless the taxpayer had furnished counties complete income and expense statements for the previous three years.  Additional provisions have to do with what happens when there are clerical errors that result in understatement of values or taxes.
• House Bill 2244 implements the watercraft constitutional amendment approved by voters in November.  The bill changes the present 30 percent assessment level to 11.5 percent in 2014 and five percent in 2015.  Watercraft with a fair market value of $1,000 or less would pay an annual tax of $12.   It is hoped the legislation will result in more revenue to government because many Kansas boat owners are believed to keep their vessels in states with lower property taxes.

Senator Donovan said he believed the Senate could agree to the offer, but he wanted to get confirmation from Senate leadership first.

 

Budget conference meets

Meanwhile, the conference committee trying to work out House and Senate differences on the budget met three times and has agreed on several items.  The committee will meet again Monday.

The Senate budget is about a two percent cut in spending from Governor Brownback’s proposal.  The House budget is a cut of about four percent.

 

Turnpike/KDOT merger moves forward

A watered-down House Turnpike/KDOT bill has been given some teeth by the Kansas Senate.

Governor Brownback had wanted the Turnpike and Transportation Department to merge, predicting savings to the state of $30 million over two years.  However, despite a lot of questioning, there have been no specifics about how that money might be saved.

The House version of the bill merely allowed both agencies to cooperate.

The Senate version makes the KDOT Secretary the Chief Executive Officer and Chair of the Kansas Turnpike Authority, responsible for the daily administration of the toll roads, bridges, structures and facilities constructed, maintained, or operated by the KTA.

The bill allows the Secretary and the KTA to contract with each other for a variety of functions, including maintenance of the turnpike and state highways.

The KTA and the Secretary would be authorized to take actions including the transfer of personnel, property and equipment from the Turnpike to the Secretary.  The bill requires the integrity of the bonded indebtedness of the Turnpike be maintained.  The bill also says no KTA toll revenue could be used in ways other than established in current law.

The measure is House Bill 2234.

 

Local government must report lobbying

House Bill 2141 has a lot of local governments, chambers of commerce, economic development organizations, and associations concerned about mountains of paperwork.

The bill requires every local government to file an annual report with the Secretary of State regarding public funds used to hire or contract for the services of any lobbyist.  The problem is that the public funds definition includes not just employing or contracting a lobbyist.

It also includes:

• Reporting membership dues or other financial support to an association employing a lobbyist.  This could mean a local government that is a member of the local chamber of commerce would have to report their chamber membership dues if the chamber lobbies, even though only a small portion of the dues would go to lobbying.  Local governments often support local economic development efforts through support of the local chamber of commerce.  Those funds would have to be reported if the chamber lobbies.
• The government would have to report the full name and address of each lobbyist who has received direct or indirect compensation or financial support from the local government during the previous calendar year.  That appears to include the lobbyists employed by the associations or organizations to which the local government is a member.
• The local government would have to report the name and address of each individual, association or organization that has received membership dues or other financial support, if they lobby.

There’s paperwork even if the local government has absolutely no connection with a lobbyist.  They would have to file a one-time affidavit with the Secretary of State if they spend no public funds for lobbying, or to associations or organizations that lobby.

As a city attorney pointed out to me, in addition to a city being a member of the League of Kansas Municipalities, Kansas Municipal Utilities, Kansas Rural Water Association, etc., many professional and skilled trade employees of a city also belong to trade and professional organizations.  The City would have to determine if those organizations lobby and, if so, report them.

 

Restraint of Trade makes a comeback

Last year’s Kansas Restraint of Trade issue, which did not pass the 2012 Kansas Legislature, seems to have a better chance this year.  It has passed both houses and is in a conference committee.

You may recall the issue revolves around a Kansas Supreme Court decision in the O’Brien v. Leegin Creative Leather Products case.  Leegin is the company that owns the Brighton line of leather and jewelry products.  Brighton does not allow retailers to carry their products unless they agree to Brighton’s pricing.  No discounts!

The court overturned that practice, which caused all sorts of headaches because a variety of Kansas businesses have similar agreements in place, and it’s apparently been a standard practice for decades, particularly in agri-business.

 

HPIP expansion to agriculture passes House

The Kansas House passed an economic development bill this week that may be in the mix of negotiations over taxes before all is through.  The vote was 106 to 16.

It expands HPIP (the High Performance Incentive Program) in several ways.  House Bill 2267 allows certain animal production and aquaculture businesses to be eligible for the income tax credits and sales tax exemptions on materials, machinery and equipment installed as part of certified HPIP projects.

 

The idea is to bring more economic development tools to rural areas.

 

Another part of the bill sought by local economic developers reverses a change that took place in 2011.  It repeals the provision that HPIP investments in certain urban areas must be a minimum of a million dollars.  The law would revert to the previous $50,000 investment level.