TOPEKA — Two southeast Kansas cement plants would be in line for significant property tax relief under a proposal that advanced Tuesday in the House that defines what should be considered property and what is machinery or equipment.
The bill, which won preliminary approval on an unrecorded 101-13 vote, is a response to escalating property taxes assessed on two cement plants since the state exempted certain commercial industrial machinery and equipment from property taxes. Although it does not mention the companies by name, the legislation would provide millions in property tax reductions for Ash Grove in Neosho County and Monarch in Allen County.
Rep. Richard Carlson, R-St. Marys, chairman of the House Taxation Committee, said that while the bill didn’t provide “a global solution” to the issue, it did address the needs of the state’s last two operating cement plants. A final vote is expected Wednesday.
Legislators exempted machinery and equipment from taxes starting in 2006 in an effort to encourage new business investment and growth in manufacturing. The change resulted in a loss of millions in revenue for cities and counties. Eventually, however, county appraisers increased the companies’ taxes by reclassifying what was formerly equipment and making it real estate and subject to taxes.
The House bill would define what could be counted as machinery and equipment and exempt only in the cement industry.
Carlson said in the case of Ash Grove, county appraisers changed the ratio of machinery and equipment and real estate property from 62 percent to 98 percent real estate, increasing the company’s tax liability from $3.5 million in 2011 to $8.1 million in 2013.
“Frustration has reached all kinds of levels and we’ve looked at this for three years in the House Taxation Committee to find a global solution,” Carlson said. “This does solve the problem with the cement industry.”
Supporters of the measure fear that without definitions to limit what county appraisers can classify as real estate, companies will be forced to pay steep increases in property taxes that could force them to close.
Rep. Tom Sawyer, D-Wichita, a tax committee member, said that although the bill addressed part of the problem, there was a need to revise the appeals process and the state Court of Tax Appeals, which has the authority to modify tax liabilities that are challenged.
“My fear is that after this bill passes that the tax committee becomes the de facto tax court and all appeals will be brought to us,” Sawyer said.
Critics of the measure argued that cement companies, while making a case for changes, shouldn’t be singled out and tax policy revised in a piecemeal manner. Efforts to amend the bill to broaden the impact failed.
Carlson received $500 in December from Ash Grove Cement Co., according to campaign finance reports filed with the Kansas Ethics Commission in January.
He told the Topeka Capital-Journal earlier this month that he had returned a $500 check from Rodney Steven, the proprietor of Genesis Health Clubs in Wichita, who has been pushing for a bill that would grant private health clubs property tax breaks.
“I feel a personal obligation on that as chairman, because I have the power to schedule bills,” Carlson said.
He did not send back the check from Ash Grove, Carlson said Tuesday, because that was not a conflict of interest. “If I thought it was (a conflict), I would have sent it back like the other one,” he said.
“I felt it was an industry problem within the state,” Carlson said. He noted that he received no donations from the Monarch Cement Co., the other company set to benefit from the proposed law.
“It’s difficult at times to determine what is going to be possibly a conflict or not a conflict. But when I look at legislation that’s industry-wide – even if it’s a small industry – I look at it a little different than I would otherwise,” Carlson said. “Hopefully, there’s no conflict.”
Contributing: Bryan Lowry of The Eagle