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Friday, July 11, 2014

Property-tax problem


The Brownback administration and free-market groups are touting a new study by the Tax Foundation as evidence of why Kansas needs tax reform. But their proposed reform – cutting income taxes – is not supported by that study.

“Location Matters,” the study by the Tax Foundation, based in Washington, D.C., compared state tax costs on mature and new firms in seven different types of businesses, including research and development, retail, call centers and manufacturing. Kansas had a horrible overall ranking of 47th for mature operations and 48th for newly established operations.

Kansas Revenue Secretary Nick Jordan cited this study in a commentary on Tuesday’s Opinion page. He said that this bad business climate was why Gov. Sam Brownback wants to cut individual income taxes and eliminate income taxes on non-corporation businesses.

But Kansas ranked so poorly because of high property and sales taxes, not income taxes.

For example, the study ranked Kansas 50th for the tax burden on a new distribution center, even though Kansas had one of the lowest income-tax burdens for this type of operation. The reason for the last-place ranking was that Kansas has the highest property-tax burden and fourth-highest sales-tax burden for these businesses, according to the study.

Kansas ranked near the bottom for manufacturing businesses and mature research and development centers for the same reasons: “These operations have one of the highest property-tax burdens in the nation along with a top-10 sales-tax burden.”

Not only do Brownback’s proposals not address these tax disadvantages, they could make them worse: His tax plan calls for making permanent the state’s temporary sales-tax increase, and his school-finance plan wants to lift the lid on local property taxes.

Though several states without individual income taxes ranked high for their overall business-tax climate for mature businesses, it’s worth noting that only one of those states was among the 10 best for new businesses (Wyoming ranked No. 9). Texas, which Brownback and others point to as the model for Kansas, ranked 42nd for new businesses.

Other studies of Kansas’ business climate show different results, with rankings ranging from the middle of the pack to the top 10. And many factors affect business decisions to locate in a particular state, including workforce, highways and individual income taxes. But the Tax Foundation study certainly indicates that Kansas has a property-tax problem.

That’s what Democrats have said repeatedly this legislative session. But what do they know?

For the editorial board, Phillip Brownlee

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