Senate tax committee advances bills to cut property taxes, help disabled veterans
BY: SHERMAN SMITHKansas Reflector
TOPEKA — The Kansas Senate is prepared to advance another plan to implement a flat income tax rate, this time with reductions phased in over six years, following last month’s failure in the House to override Gov. Laura Kelly’s veto of similar legislation.
The Senate Assessment and Taxation Committee has scheduled a hearing Tuesday on Senate Bill 539, which packages the flat tax with other provisions similar to those in the bill Kelly vetoed. They include tax cuts for banks, Social Security income and the state property tax that funds public schools.
The committee is simultaneously pursuing standalone bills that would eliminate property taxes used to pay for maintenance of buildings owned by state agencies and universities, as well as a sales tax exemption for disabled veterans.
Earlier this year, the Legislature adopted House Bill 2284, which would have established an income tax rate of 5.25% for all income brackets. The flat tax portion alone would have reduced tax collections by more than $300 million annually, with about half of that money going to the top 5% of wage earners. An analysis by the Institute on Taxation and Economic Policy found that most of the state’s workers would see a benefit of tens of dollars per year, while billionaire Charles Koch saved $875,000 per year.
Kelly vetoed the legislation, and the House failed to override her veto with two-thirds support on Feb. 20.
The latest proposal would impose a universal income tax rate of 5.7% for 2024, followed by reductions of 0.05 percentage points every year through 2029, when the tax rate would be set at 5.45%. The fiscal impact of the bill had not been posted Monday afternoon.
Kansas currently uses a graduated income tax rate: 3.1% for income under $15,000, 5.25% for income between $15,000 and $30,000 and 5.7% for income above $30,000. The income amounts are doubled for couples filing jointly.
Property taxes
The Senate tax committee on Monday gave approval to Senate Bill 94, which would discontinue statewide property tax assessments to pay for building costs.
Currently, the state taxes property at 1 mill for the Education Building Fund and a half-mill for the State Institutions Building Fund. The legislation would authorize transfers from the state general fund to partially offset the loss of property tax dollars.
Under an amendment to the bill, the state would repeal from statute the Local Ad Valorem Tax Reduction Fund. From 1937 to 2003, the state set aside a portion of sales tax collections and divided the money among counties through a formula based on population and assessed property tax value. The money put into the LAVTRF was used to lower the local property tax burden.
Republicans have resisted calls from Democrats and bipartisan local officials to resume the program, claiming without evidence that counties used the money to grow government instead of lowering property taxes.
Sen. Caryn Tyson, a Parker Republican who chairs the Senate tax committee, said the logic behind SB 94 was to replace the LAVTRF with a similar-sized property tax cut at the state level.
“It’s an actual tax reduction for Kansans,” Tyson said during Monday’s committee hearing. “And we don’t have to worry about all the arguments we heard of will the money go for a tax relief or will it go to grow government?”
“Instead of having the confusing language, not being funded for over 20 years, we’re just gonna get rid of the language so that it’s not there and provide true property tax relief for approximately the same dollar amount,” she added.
If the LAVTRF were utilized last year, the state would have distributed $128 million to counties. Under Tyson’s proposal, property taxes would be cut by an estimated $77.1 million next year. Funding for buildings would be lowered by about $14 million, leaving less money available for deferred maintenance projects at Kansas Board of Regents schools and buildings owned by state agencies.
Disabled veterans
Here’s how tax policy is made in Tyson’s committee:
In March 2023, the committee held a hearing on Senate Bill 58, which would provide a sales tax exemption for disabled veterans.
The committee adopted amendments to the bill on Feb. 15, even though it wasn’t among the bills on the committee’s agenda that day. The amendments were handed out during the committee, but the bill’s text was never modified.
Monday’s agenda called for “possible action on bills previously heard,” which actually meant definite action on two specific bills.
As committee members began to discuss the specifics of SB 58, Sen. Usha Reddi, a Manhattan Democrat, interjected with confusion. She wondered why the numbers they were discussing didn’t match those that appear in the legislation as it was filed. Tyson informed Reddi of the undocumented changes to the bill.
“You had to take notes and write it as we were going,” Tyson said. “Sorry.”
After making additional changes Monday, the committee gutted the contents of House Bill 2036, which had passed the House 123-1 and dealt with property tax breaks for disabled veterans, and inserted the contents of the overhauled SB 58.
Although there was bipartisan support on the committee for providing a sales tax break for disabled veterans, lawmakers were at times confused about how much the bill could cost. Sen. Virgil Peck, a Havana Republican, assured committee members that a projected $75 million price tag was highly unlikely.
The proposed sales tax exemption would include exceptions for purchases of vehicles, alcohol and tobacco products. The total benefit would be capped at $24,000 per year, but because the state cannot track usage, veterans would be asked to follow the honor system.