TOPEKA -- After a contentious debate on the Senate floor Wednesday, lawmakers advanced a bill that could change how some Kansans file their tax returns this year, and cost the state millions in revenue.
A final vote is expected Thursday. If approved, the measure heads to the House. A similar bill was passed last year, but failed to make it to the governor’s desk. Even if the new proposal passes both chambers, there’s a strong likelihood Democratic Gov. Laura Kelly will veto it.
Under the current law, Kansas taxpayers can’t claim itemized deductions on state returns unless they also claim them on their federal returns. Senate Bill 22 would effectively decouple state and federal tax policies, allowing itemization at the state level, regardless of how taxpayers handled their federal returns.
The bill also proposes changing the state tax code to permit deduction of so-called global intangible low-taxed income, or GILTI. It means that multinational corporations could bring profits earned overseas back to the state without having them taxed as income.
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The measure, sponsored by Kansas Senate President Susan Wagle (R), is intended to offset the effects of recent changes to the federal tax code passed by Congress in 2017 and signed President Trump.
The Kansas Department of Revenue estimates that the bill would cost the state $191 million in revenue in the next fiscal year, although lawmakers are still unsure of the exact cost. With Kelly’s plans to increase education funding and expand Medicaid—and the senate’s recent advance of a bill to make a $115 million payment to the state employees’ pension fund—the tax plan could put a hefty dent in the budget.
Despite revenue concerns, Senate Republicans contend that the changes to the tax code are critical for the state economy, and will keep businesses and jobs in Kansas.
Revenue officials estimated in December 2017 the federal tax code revision would result in an additional $140 million a year to the state budget. Wagle insists the bill is “revenue neutral,” and will simply save Kansans from paying more as a result of the federal changes.
“I think it sends a negative message to the companies that we want to locate here in Kansas, that we want to grow here in Kansas, to say ‘I want to reach into your foreign earnings that we didn’t expect in 2017 and I’m going to tax them rather than allow you to bring back and reinvest those earnings,” Wagle said. “I think that’s a tremendously negative signal.”
Last week, a select tax committee created and chaired by Wagle spent several days hearing from business leaders in support of the bill.
“If we don’t pass this bill, we will be passing a new tax in Kansas on these multinational corporations,” Wagle said.
But Democrats say the plan only benefits multinational corporations, and warn that it could be debilitating to the Kansas budget.
Sen. Tom Holland, the committee’s ranking minority member, said proponents were virtually all lobbyists for multinational corporations, many who failed to specify exactly how the federal tax changes would affect their clients. Holland motioned to send the bill back to committee.
The motion was ultimately defeated in a roll call vote, 12 to 28.
Prior to the debate, Gov. Kelly issued a statement urging lawmakers to vote no on the bill.
“It is time to put the priorities of Kansas families first and fund our schools. With a Supreme Court deadline fast approaching, the legislature should be focusing on education, not another irresponsible tax plan,” Kelly said.
Sen. Anthony Hensley (D) argued his opposition, calling it a mistake to pass the bill and asserting that the bill would squander funds that should ultimately be used for public education.
“What attracts businesses to Kansas is a well-educated and highly trained workforce,” Hensley said. “We cannot adequately prepare students for 21st century jobs without fully funding our public schools.”
The amendment ultimately failed.