A bill changing state sales and income tax policy that would reduce state revenue by more than $100 million dollars was approved by the Kansas House Friday, but faces a likely veto from Gov. Laura Kelly.
If SB22 made it into the law books, Kansas wouldn’t collect foreign income repatriated into the U.S. or Global Intangible Low-Taxed Income [GILTI] per federal tax policy, sales tax on food would decrease from 6.5 to 5.5 percent, individuals and households could itemize claimed deductions between $7,000 and $24,000, and Kansas would begin collecting sales tax from out-of-state internet retailers doing business in the state.
The vote was largely split on partisan lines. It’s estimated Kansas would see a decrease in about $187 million due to decoupling from federal tax codes regarding foreign income while raising an additional $21.7 million per year from internet sales. Taxpayers would save more than $43 million per year in taxes on food as well.
“It absolutely decimates [the governor’s]budget,” says Rep. Sydney Carlin, D- Manhattan, who voted against it. “And her budget is the first step forward to repairing the damage that we’ve had in Kansas.”
Carlin says that over the next three years, the bill would take $495 million out of the state budget.
“It was like we snapped our fingers for the [multi-national] companies which may not be anywhere in our region,” says Carlin.
Rep. Tom Phillips, R- Manhattan, says he wasn’t in love with every component of the bill — particularly regarding GILTI — but it was moving in the right direction. Phillips says he had to balance what is fair with the financial needs of Kansas.
“Sure, I would love to spend this money and would love to correct some of the issues our state is facing,” Phillips says. “But the task on the tax committee is to create what we think is fair and equitable tax policy.”
Phillips says the bill was driven by federal changes in tax code in 2017 that intended to incentivize multi-national companies to repatriate dollars in a one-time event back into the U.S., adding that Kansas has never taxed foreign incomes previously either.
“The thinking here was this was going to be a one-time event to be consistent with the federal tax code — and there were corporations being caught up in this,” Phillips says.
Phillips also says he thinks it’s important to be able to help lessen the tax burden middle income taxpayers by allowing them to itemize their deductions.
“Had we not taken action to pass this, then a lot of homeowners who were able to not deduct their mortgage interest or medical expenses probably would have been in a difficult position,” says Phillips.
Democrats have raised concerns that the cuts will stop Gov. Kelly from achieving her some of her goals such as increasing education funding and Medicaid expansion.
“There would be no funding,” Carlin says. “Well, we’d find a way to fund education, I suspect — but something else would have to be cut.”
Carlin also says the food tax reduction was added to sweeten the bill, and that they have separate bills on that topic that don’t reduce taxes on large businesses which haven’t gotten any traction under GOP congressional leadership.
Gov. Kelly has repeatedly stated that she doesn’t think that Kansas should pass any bills changing tax codes until they address a multitude of issues she’s identified in the state. Carlin says the Democrats expect Kelly will veto the bill, and that she hopes they can sustain it.