By John Celock
The Kansas House of Representatives defeated a bill to raise the state’s sales tax Friday, the opening salvo in what is likely to be an extended debate on new taxes in the state.
The House voted on a voice vote a proposal to raise the state’s sales tax from 6.15 percent to 6.85 percent with a drop in sales taxes for food to 5.9 percent. The measure – proposed by Reps. Dennis Hedke (R-Wichita) and Kasha Kelley (R-Arkansas City) – is the first round of a debate over tax hikes in the state. Kansas lawmakers are looking to plug a multimillion budget hole in the state budget, caused following lawmakers approved a massive cut in income taxes in 2012.
The bill did not include changes to the state’s business taxes, including the 2012 elimination of income taxes for LLCs and S Corporations, which have been brought up as part of the discussion to solve the budget hole. Rep. William Sutton (R-Gardiner) proposed an unsuccessful amendment to include the LLC and S Corp taxes.
“It is wrong however that we ignore the gorilla in the room. I have an amendment so we can discuss the tax policy in its fullness,” Sutton said.
Sutton’s plan would have tied those corporate taxes to the lowest income tax rate for residents. His amendment received opposition from Republicans who argued that it would hurt the state’s business community and small business growth, which they argued has risen since the income tax cuts were first enacted.
“This amendment is not a good idea. It is bad policy and it’s bad politics,” Rep. Larry Powell (R-Olathe) said. “We made a commitment to business owners. More eyes are on this than the state of Kansas. We have more states looking at us.”
Democrats were divided on the Sutton amendment, with House Democratic Agenda Chairman Brandon Whipple (D-Wichita) arguing to send the entire bill back to the House Taxation Committee in order to have a full tax plan developed, instead of a piecemeal action. Rep. Jim Ward (D-Wichita) argued that the Sutton amendment would “close the largest tax loophole in the history of Kansas.”
Whipple noted that the sales tax hike would leave Kansas with one of the highest state sales taxes in the country and when combined with local sales taxes, could place some communities in double digits for sales tax. Opponents of the sales tax hike had argued in ads and social media that some communities would have a higher sales tax than New York City’s 8.875 percent sales tax under the proposal. New York City’s sales tax is a combination of a New York State sales tax, the city sales tax and a sales tax to fund the Metropolitan Transportation Authority, which runs much of the region’s mass transit, including the New York City subway system.
Several Republicans used the debate in order to push for more spending cuts, saying that the state was spending too much.
Rep. John Rubin (R-Shawnee) said that while he has not signed any pledges to avoid raising taxes, he does not normally support tax hikes. He noted that the state though had reached a point where tax hikes if unavoidable.
“We have reached that emergency this year. While there are some areas on the margins to reduce spending they are pretty small. I hope we can continue to pursue those in the future,” Rubin said. “They are nowhere near the $340 to 360 million to close the budget shortfall. I believe this bill is the wisest course of action. I don’t think we would be in this posture if we had been more responsible in past years in reducing the budget. That is water under the bridge. It is time for us responsibly to govern and legislate for the citizens of Kansas.”
Rubin pushed an unsuccessful amendment to sunset the sales tax hike in 2017, while keeping the food tax cut permanent.
Lawmakers are likely to continue to debate more tax proposals on the floor as the Legislature deals with the fiscal impact in a session that had originally been predicted to conclude this week. The House Taxation Committee is scheduled to meet again on Monday to continue discussing more plans.
Kelley, one of the two co-sponsors of the plan debated Friday, said that she wants to see the focus of the tax debate be on consumption and sales taxes versus income taxes. She noted that from her analysis, lower income taxes grow the economy more than lower sales taxes.
At the same time, Kelley told her colleagues that she did not like having to push a tax hike.
“It makes me sick to do it,” she said.