The Kansas House is planning to take up a bill that would repeal the state’s business income tax exemption on more than 330,000 business owners.
“We need to have a vote on the House floor,” said Rep. Marvin Kleeb, an Overland Park Republican.
The exemption on certain businesses such as limited liability companies, a tax break that was part of Gov. Sam Brownback’s 2012 and 2013 income tax cuts, has come under increased fire in recent weeks as the state tries to fix another big budget hole.
As discussed Thursday, the bill would take effect Jan. 1, 2017, so it would have little effect on the $290 million budget shortfall. That’s the amount of the gap in the current budget plus the shortfall for next fiscal year, which ends June 30, 2017.
Rep. Mark Hutton, a Wichita Republican, said the bill would address the unfairness of the tax break for LLC owners and would make good long-term sense. He said ending the exemption would generate about $220 million the first year.
“It’s a structural change that puts us on a stronger path,” he said.
But Rep. Stephanie Clayton, a moderate Republican from Overland Park, was cool to the idea. She said her focus was on the budget shortfall.
“Right now this is something that does not balance the budget,” she said.
Sen. Les Donovan, who held a committee hearing Wednesday on a different plan to roll back the exemption, said he also thought it was important to hold a vote. But it would be a difficult vote for many members, he said.
“A lot of people are scared because they consider it a tax increase,” Donovan said. “That’s the way it will be touted by their opponents in the election.” All Kansas House and Senate seats are up for election this year.
Donovan said he plans to meet with Brownback on Friday about the tax exemption. Brownback has said he opposes any change in tax policy that increases taxes on small businesses.
The House could consider the measure as early as today. If it passes the House, the measure would go to the Senate for consideration.
At Donovan’s committee hearing Wednesday, several business groups, including the Kansas Chamber of Commerce, lined up against a repeal of the exemption. However, some Kansas City-area business groups supported repeal.