Kansas state Sen. Greg Smith of Overland Park (center) spoke with fellow Republican Sens. Mary Pilcher-Cook of Shawnee and Ty Masterson of Andover, during the chamber’s debate on a plan for raising taxes to close a budget shortfall Sunday at the Statehouse in Topeka. John Hanna AP
Kansas state Sen. Greg Smith of Overland Park (center) spoke with fellow Republican Sens. Mary Pilcher-Cook of Shawnee and Ty Masterson of Andover, during the chamber’s debate on a plan for raising taxes to close a budget shortfall Sunday at the Statehouse in Topeka. John Hanna AP

Government & Politics

Kansas Senate approves tax increases, state budget

By DION LEFLER

The Wichita Eagle

June 07, 2015 07:24 PM

UPDATED June 08, 2015 08:07 AM

TOPEKA

On a record-setting 108th day in the Kansas legislative session, Senate Republicans passed a tax bill and sent it over to the House, the first crack in the gridlock that has gripped the Capitol as lawmakers struggle to close a $350 million budget hole.

The bill protects the zero tax rate for pass-through business owners while adding four-tenths of a cent to the general sales tax. After a year, the sales tax on food would drop 1.6 cents.

The House took Sunday off and will get the bill on Monday.

In the Senate, it passed by the tightest margin possible.

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The initial vote stuck at 20, one vote short of the number needed for passage, until Sen. Julia Lynn, an Olathe Republican, returned to the chamber and cast the decisive vote to give it 21.

A moment later, Sen. Michael O’Donnell, a Wichita Republican, changed his vote from “yes” to “pass,” then back to “yes” after Sen. Jeff King, an Independence Republican who was chairman of the meeting, told him he had to either vote or request permission to pass.

Senate tax committee chairman Les Donovan, a Wichita Republican, asked the Senate to pass the bill “with a strong vote, strong enough to send a message to the House that says: ‘This is the answer. Finish our work here.’ ”

Sen. Tom Holland, a Baldwin City Democrat, later responded, “I would be more concerned about the message we’re sending to the Kansas people.”

The new wrinkle in Sunday’s bill is automatic elimination at the end of 2019 of numerous sales and property tax exemptions.

The full list was not available Sunday.

Republican lawmakers said it would include nearly all exemptions except those for religious organizations, agriculture, business-to-business commerce and some health organizations.

Between now and 2020, a Republican-dominated commission would be appointed to decide which, if any, other exemptions should be added back.

Democrats expressed concerns that the sunset provision would levy sales taxes on utilities and gasoline.

Minority Leader Anthony Hensley, a Topeka Democrat, asked four times why the sunset provision would protect agriculture utilities but not residential utilities.

Later, Majority Leader Terry Bruce, a Hutchinson Republican, said he reviewed the law and that utilities and gas would not be at risk for additional sales taxes beyond the taxes Kansans already pay on those items.

The bill also protects the zero income tax rate now enjoyed by owners of limited-liability companies, sole proprietorships, farms and corporations organized under Subchapter S of the federal tax code.

Those are called “pass-through” businesses because the companies aren’t taxed and owners theoretically pay taxes on their personal returns.

Sunday’s bill would tax only guaranteed payments to pass-through business owners. Critics say they can easily circumvent that by changing the way they pay themselves.

Gov. Sam Brownback proposed taxing guaranteed payments but confirmed Sunday that he would veto a tax plan that raises the zero tax rate on pass-through businesses, the centerpiece of his 2012 tax plan.

Income tax rates for wage-earning workers would be frozen at the current level through 2017 and would decline slightly for low-income workers in 2018.

The general sales tax would rise from 6.15 percent to 6.55 percent on July 1. A year later, the tax on food would drop to 4.95 percent.

“It’s the lowest rate (on food) we’ve looked at all session,” Donovan said.

The food sales tax rebate for poor families, the elderly and people with disabilities would be eliminated.

The bill would also raise taxes on cigarettes 50 cents a pack on July 1. Starting a year later, the state would tax the liquids used in electronic “e-cigarettes” at 20 cents per milliliter.

The proposal also contains a change in a $10 million school-choice program that gives 70 percent tax credits on corporate donations to private-school scholarships. The change would allow payments to private schools for students who are already attending them and whose parents pay their way through tithes to their church.

Another provision of the bill would require local governments to hold an election to raise property rates by more than the rate of inflation.

Cities, including Wichita and the unified government of Kansas City and Wyandotte County, have said the proposal is based on faulty math.

Those cities said most property tax growth is from new construction, which has no relationship to the inflation rate. They also said it would be chaotic for local governments to try to hold elections with existing mandatory deadlines on budgeting and tax notifications.

Reach Dion Lefler at 316-268-6527 or dlefler@wichitaeagle.com.