Bill ending business tax exemption clears Kansas House panel

Kansas would repeal a tax break championed by Republican Gov. Sam Brownback under a bill that cleared a legislative committee Monday with bipartisan support.

The House Taxation Committee, working on a package of tax increases to erase a projected budget deficit, approved a bill that would make 281,000 business owners and 53,000 farmers again pay personal income taxes on their profits.

The state in 2012 exempted such income from taxes at Brownback’s urging to stimulate the economy, and the governor has touted the policy ever since as a “small business accelerator.”

Lawmakers are rethinking the policy because budget problems arose after it and other personal income tax cuts were enacted in 2012 and 2013. Legislative researchers told the committee Monday that lawmakers must close a shortfall of $406 million in the budget for fiscal 2016, which begins July 1.

The House committee plans to debate other income tax proposals Tuesday, along with measures to increase sales, cigarette and gasoline taxes. The measure approved Monday by a 13-8 vote goes next to the full House for debate.

“This would be a work in progress,” said Chairman Marvin Kleeb, an Overland Park Republican.

The bill would raise nearly $134 million during the next fiscal year. The state would impose a 2.7 percent tax on most of the business owners’ and farmers’ profits, but income from rents and royalties would be taxed at 4.6 percent — mirroring the two income tax rates on wages.

Brownback has said he doesn’t want to tinker with the income tax break for business owners. The idea also is opposed by influential business groups, including the Kansas Chamber of Commerce and the National Federation of Independent Business.

The governor’s office declined to comment on the committee’s action. But several Republican committee members said the measure is a big tax increase for small-business owners and hurts the state’s business climate.

“It looks schizophrenic,” said Rep. Marc Rhoades, a Newton Republican.

GOP committee members were evenly split on the measure, with eight of them joining the panel’s five Democrats, who’ve consistently opposed the tax break for business owners. Critics contend the policy is unfair because, for example, a doctor who owns his medical practice can pay no state income taxes, while his secretary does.

“I think we’ve got an opportunity here to right the ship,” said Republican Rep. Mark Hutton of Wichita.

The personal tax cuts in 2012 and 2013 also reduced rates.

The committee plans today to debate a proposal from Brownback to decrease most personal income tax deductions, including a popular one for the interest paid on home mortgages. The measure would raise $50 million during the next fiscal year.

The committee also will take up a measure from Rep. Gene Suellentrop, who has proposed increasing the state’s cigarette tax by 75 cents a pack, to $1.54, and increasing the gasoline tax by 5 cents a gallon, to 29 cents. The gas tax increase would expire in July 2017.

Suellentrop, a Wichita Republican, also proposed raising the sales tax to 6.5 percent from 6.15 percent, though his plan would drop the tax on groceries to 5.9 percent.

His proposals on sales, cigarette and gasoline taxes would raise $264 million during the next fiscal year.

This story was originally published May 11, 2015 at 6:42 PM with the headline "Bill ending business tax exemption clears Kansas House panel."