Three influential Republican state senators Tuesday introduced a bill to repeal a controversial business tax exemption approved as part of Gov. Sam Brownback’s 2012 income tax cuts.
Sen. Jim Denning, an Overland Park Republican, said the measure is needed to close a tax “loophole” that is costing “at least $250 million” a year and wreaking havoc with the state budget.
“It continues to make the budget unstable,” Denning said in a news release. “Given the rapid deterioration of the budget, I believe we have the votes to close the loophole and send the bill to the governor.”
If that happens, Brownback has made it clear that he’s unlikely to sign the bill. In a statement issued last week shortly after the Kansas Department of Revenue announced that February tax receipts had fallen $54 million short of projections, Brownback said, “I will not support or call for a tax increase on small business in Kansas.”
Brownback has often said that he would view the repeal of the business tax exemption as a tax increase.
In addition to Denning, Senate Vice President Jeff King, an Independence Republican, and Sen. Greg Smith, an Overland Park Republican, are sponsoring the repeal bill.
It would do away with a provision in the 2012 tax bill that exempted more than 300,000 business owners from having to pay income taxes on their non-wage business income.
“The Legislature has worked aggressively to make Kansas the lowest income tax state in the region,” King said. “But we cannot lower taxes in ways that are unfair to hard-working Kansans.”
All three of the repeal bill’s sponsors continue to support the portion of the 2012 law that lowered individual income tax rates. Many Democrats and some moderate Republicans have said those reductions also should be reconsidered.
The House Taxation Committee is expected to hold hearings next week on a bill that would repeal the business tax exemption and use the restored revenue to cut the statewide sales tax on food from 6.5 percent to 2.6 percent.
The bill’s sponsor, Rep. Mark Hutton, a Wichita Republican, said lowering the sales tax on food is the best way to restore fairness to the tax system. But he anticipates there will be efforts to change that portion of the bill and instead use the money to prevent additional budget shortfalls.
“Whether or not this ends up actually reducing the sales tax or not on food, I don’t know,” Hutton said. “It could get hijacked for (the) state general fund.”
Jim McLean is executive editor of KHI News Service in Topeka, a partner in the Heartland Health Monitor team.
