Kansas House overwhelmingly rejects tax plan as deficit remains and furloughs await

The Kansas House overwhelmingly voted down a bill that would have raised sales and cigarette taxes while protecting the bulk of 2012 tax cuts for “pass-through” businesses.

It was the chamber’s first run at a House-Senate proposal aimed at generating revenue needed to close a roughly $400 million budget gap that has gridlocked the Republican-dominated Legislature.

If lawmakers don’t pass a tax plan and budget by the weekend, that could trigger widespread furloughs of state workers and a partial government shutdown.

Most opposition in the 108-3 vote crystallized around a provision to raise sales taxes to get about half the revenue needed to close the budget gap for 2016 — $214 million.

Under the proposal, the sales tax would have risen from the current 6.15 percent to 6.65 percent on July 1. On Jan. 1, the sales tax on food would have dropped to 5.9 percent.

Rep. Steven Johnson, a Republican from east-central Kansas, said it would push some combined state and local sales tax rates to 10.2 percent.

“By the way,” he said, “that’s higher than New York City.”

Opposition also surfaced over part of the proposal that largely left intact 2012 tax cuts for pass-through businesses.

The 2012 plan created a zero tax rate for owners of limited liability companies, farms, sole proprietorships and corporations organized under Subchapter S of the federal tax code.

Those are called pass-through businesses because the companies themselves are not taxed and owners theoretically pay income taxes on their individual returns.

The House proposal followed Republican Gov. Sam Brownback’s request that only guaranteed payments to those business owners be subject to income tax.

Critics contended that accountants could easily circumvent the requirement for their business-owning clients.

Rep. John Carmichael, a Wichita Democrat, said the 2012 Brownback tax plan was the biggest gift he ever got from anyone because as a lawyer in an LLC, he pays no income tax.

“It’s a gift I didn’t ask for and a gift I didn’t need,” he said, criticizing the unfairness of lawyers in the firm paying no income tax while the office assistants and janitors do.

Rep. Steve Huebert, a Republican from the Wichita area, argued the bill was an imperfect, but necessary, move. He called on lawmakers to compromise and pass the bill, which was close to Brownback’s suggested tax plan for this year.

He said that would avoid a veto, which the Brownback administration has threatened if the bill cuts too deeply into the business tax exemption.

Following the vote, the bill was sent back for a rework by the House-Senate tax conference committee that had sent it to the floor earlier in the day.

Committee members said they plan to work on a new tax plan Friday morning.

This story was originally published June 4, 2015 at 8:45 PM with the headline "Kansas House overwhelmingly rejects tax plan as deficit remains and furloughs await."