Kansas House votes to keep income tax exemption for businesses

A bill to repeal an income tax exemption for 330,000 Kansas business owners went down to a fairly quick defeat Friday in the Kansas House.

After a 20-minute debate, 45 representatives voted “yes” to repeal the exemption while 74 voted “no.”

The tax exemption is part of Gov. Sam Brownback’s 2012 income tax cuts, the Republican governor’s signature tax policy that also slashed individual income tax rates.

The exemption for certain businesses such as limited liability companies has been a major target of critics, who said it was an unfair tax break and a big contributor to the state’s ongoing budget woes.

Some Democrats and moderate Republicans who have long criticized Brownback’s tax policy voted to keep the exemption, saying the measure offered Friday failed to address the tax policy as a whole and would have done little to solve the state’s current $290 million budget shortfall.

“I have consistently called for a comprehensive approach to address the revenue problem we have as a state,” said Rep. Melissa Rooker, a Fairway Republican who voted against the repeal. “This does not do that.”

House Minority Leader Tom Burroughs, a Kansas City, Kan., Democrat, voiced a similar sentiment.

“It doesn’t get to the root of the problem. It’s a very small piece,” Burroughs said. “Here we are late in the session once again, trying to do tax policy on the fly.”

The repeal of the exemption was to take effect Jan. 1, so the state wouldn’t have seen most of the increased revenue until fiscal year 2018, too late to fill the current budget gap. But supporters argued that ending the exemption would help bring long-term stability to the budget, adding more than $200 million in revenue annually.

Twelve Democrats voted against the repeal and 14 voted for it. About two-thirds of Republicans voted against the repeal and about a third voted in favor.

Rep. Marvin Kleeb, an Overland Park Republican, said he voted for the repeal and questioned why some lawmakers who have long criticized the exemption didn’t do the same.

“We gave them the opportunity to back up what they’ve been saying,” Kleeb said.

During the debate, Rep. Mark Hutton, a Wichita Republican, urged lawmakers to repeal the exemption, which he said hadn’t succeeded in boosting the economy.

“You do the math,” Hutton said. “At the end of 2016, we will have invested almost a billion dollars into this economic incentive program to grow, maybe, 35,000 jobs.”

Rep. Tom Sawyer, a Wichita Democrat, said the tax exemption never made sense, even to many business owners who have said it was unfair they weren’t paying state income tax.

“This is a tax policy that needs to be corrected,” Sawyer said. “But somehow this body is in denial. This body cannot admit we made a mistake in 2012.”

Brownback has rejected arguments that the income tax cuts have caused the state’s budget problems, maintaining that sluggishness in the aviation, agriculture, oil and tax sectors have hurt the state’s economy.

“The governor does not believe taxing our small business job creators is the way to grow the Kansas economy,” said Eileen Hawley, Brownback’s spokeswoman. “An important component in attracting and retaining businesses is a stable regulatory and tax policy environment.”

The House and Senate planned to work into the weekend, with the job of closing the $290 million budget gap still to be addressed.

This story was originally published April 29, 2016 at 6:46 PM with the headline "Kansas House votes to keep income tax exemption for businesses."