Kansas Lawmakers Vote Down LLC Tax Repeal


By John Celock

The Kansas House of Representatives voted down legislation Friday that would have repealed income tax cuts for LLC owners in the state, one of the most heavily parts of the state’s 2012 tax cuts.

The House voted 45-74 on the LLC repeal bill, setting the stage for other debates over how to fill the state’s growing budget shortfall. The vote comes after several years of lawmakers calling for a vote on the controversial provision, which exempts LLC owners in the state from personal income taxes. The 2012 tax cuts also included provisions zeroing out taxes for LLCs and S corporations in the state.

“Especially in the past year we have heard from our constituents and that they want to have this exemption repealed,” House Taxation Committee Chairman Marvin Kleeb (R-Overland Park) said. “This has been one of the most maligned parts of the tax bill passed.”

The LLC loophole has been one of the most heavily debated parts of the plan, with the debate growing as the state’s budget shortfall has grown in recent months. Gov. Sam Brownback (R), who has made the 2012 tax cuts a central part of his administration, has defended the LLC loophole, saying it will help create jobs. He had threatened to veto any legislation to repeal the loophole. Legislative leaders have called for a vote on the final plan. House Commerce, Labor and Economic Development Committee Chairman Mark Hutton (R-Wichita) has long called for the repeal of the plan.

Repeal of the LLC plan has long been advocated for by more moderate Republicans and Democrats in the Legislature.

The final vote, however, did not fall on partisan or ideological lines with Democrats and moderate Republicans voting against the repeal, along with conservative Republicans.

Rep. Tom Sawyer (D-Wichita), the top Democrat on the Taxation Committee, told lawmakers that the Legislature made a “huge mistake” with the original tax plan in 2012. He said that the tax plan’s impact has been made worse by the 2015 tax bill that raised the state’s sales tax, including the sales tax on food.

Sawyer argued against supporters of the LLC loophole, who say the plan benefits small businesses around the state. He said that studies have shown it benefits the top two percent of taxpayers the most. He also noted that while 330,000 LLC owners do not pay income taxes, employees of LLCs are still subject to income tax.

“This tax plan has been hurting our state since 2012,” Sawyer said. “We should have changed it in 2013. Today we have the opportunity to start he road to recovery.”

With the repeal bill failing, lawmakers will likely tax up other proposals to close the deficit. Among the other proposals are plans for the securitization of the state’s tobacco settlement funds, delaying payments to the state pension fund or cuts to higher education. Each of the plans have generated opposition, including those who have said the securitization plan would harm state children’s programs, which are funded by the tobacco funds.

Rep. Sue Boldra (R-Hays) said that the state needed to repeal the loophole in order to plug the budget deficit. She said that the state could not handle more cuts.

“This is our opportunity, perhaps our final opportunity to preserve the state of Kansas as we know it. A no vote on this bill is a no vote for jobs. Ask the Transportation Department,” Boldra said. “It is a no vote for our most vulnerable, our children’s programs, our elderly, our state institutions. We can’t desert them because we’re standing on principle. Now is not the time for retribution it is the time for action. We are the legislative branch and we have the power of the purse. Let’s not surrender that to the second floor, the executive branch.”