June 3, 2012

Glitch lurks in Kansas income tax cuts

The tax bill signed into law by Gov. Sam Brownback last month contains a glitch that sends conflicting signals about whether the deductions would be repealed or not, The Kansas City Star has learned.

The mammoth new tax bill passed in May was supposed to cut Kansas income taxes and still allow deductions for donations to charity and interest paid on home mortgages.

Well, maybe not.

The tax bill signed into law by Gov. Sam Brownback last month contains a glitch that sends conflicting signals about whether the deductions would be repealed or not, The Kansas City Star has learned.

Passed in a flurry of action toward the end of the legislative session, the bill contains a clause that appears to repeal itemized deductions. However, the same bill leaves in place a section of state law allowing itemized deductions.

The conflict surprised lawmakers on the House tax committee and leaves some doubt about the fate of the deductions — although the Legislature clearly intended to keep them in place.

“Obviously, it’s not certain because we have this inconsistency in the statute,” said Martin Dickinson, a tax specialist at the University of Kansas who has studied the tax bill passed by the Legislature.

Officials from the Brownback administration and the Legislature maintain that it always was lawmakers’ intent to keep the deductions in the tax plan. Revenue Secretary Nick Jordan said the plan will be administered in the way the Legislature intended.

“The intent of the bill was to put the deductions back in,” Jordan said. “Over all the years, I have known conflicts in bills even when I was in the Senate. It doesn’t happen often but it’s not abnormal either.”

Lawmakers said the drafting error could be taken care of next year with another bill making technical changes in the law so it’s consistent. The tax changes don’t start until next year, meaning taxpayers won’t start noticing changes until they file their returns in 2014.

However, a new bill could potentially put the entire tax debate back in play when lawmakers return in 2013, some lawmakers noted.

“Any time you open up a subject of any kind, all of a sudden it can be expanded,” said Rep. Marvin Kleeb, an Overland Park Republican, and a leading member on the House tax committee.

But Rep. Richard Carlson, chairman of the House tax committee, said any tax measure could spark another tax debate.

“No matter what, the whole thing can be opened up. There will always be tax bills,” said Carlson, a St. Marys Republican.

Carlson and Kleeb said they had no idea there were inconsistencies in the law. Kleeb said he was focused more on a compromise tax plans that were in the works.

However, the compromise plan never gained much traction after the House agreed to go along with a bigger tax-cutting bill in the Senate. One of the changes the Senate made was to keep the itemized deductions.

Fearing that senators wouldn’t agree to more moderate tax cuts, the House called the Senate’s bluff and approved the much bigger tax bill that Brownback eventually signed.

State Sen. Les Donovan, one of the leading negotiators of the tax plan, chuckled a little and said he wasn’t terribly surprised that a mistake was made, especially since the session was so tumultuous.

“After the year we had, this is probably not as surprising as it might normally have been,” said Donovan, a Wichita Republican. “It was just a horribly confusing year with things bouncing all over the place.”

Carlson noted that there were at least four different tax bills in play during the session. He said there were two agreed to by a conference committee that he thought were probably better vetted than the Senate proposal that ultimately became law.

Jordan acknowledged that the Revenue Department learned of the discrepancy shortly after it passed the Senate, but before the House agreed to the bill. At that point, from a procedural perspective, the bill could not be amended further.

“I don’t know that it was our place to say anything at that point,” Jordan said. “That’s usually left up to the legislative revisors and legislative staff to address something like that, normally.”

House Minority Leader Paul Davis called the inconsistency “another interesting twist in this whole tax discussion.”

“I don’t think it changes the impact of the bill, but it’s just one of those things that can happen when you’ve got a big bill with a lot of moving parts and it hasn’t been flyspecked by the Legislature in the way that it should be because it gets put on a fast track to get to the governor’s desk,” said Davis, a Lawrence Democrat.

Dickinson, the KU tax expert, agreed that it appears the Legislature intended to keep the itemized deductions, even though there might be inconsistencies. The clause in the bill deleting the deduction probably was an “oversight,” he said.

But he noted there are legal principles that give preference to specific provisions of the law over ones that are vague. So in that case, he said the deductions would likely remain if the law was challenged in court.

“Even though you have this general statement about the standard deduction, you’ve got this other section, which is quite specific in saying you can itemize,” Dickinson said.

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