Kansas lawmakers are considering a measure proposed by Gov. Sam Brownback that would allow businesses of all sizes and industries to claim an income tax expense deduction for business machinery and equipment beginning next year.
But it's a proposal that some say will stifle the growth plans of Kansas companies and could prompt them to look to expand their operations outside the state.
Tax accountants at Allen, Gibbs & Houlik in Wichita and at CBIZ Accounting Tax and Advisory Services in Leawood have studied the proposal and say it will strip out a number of current tax credits, including the business and job development tax credit, and the business machinery and equipment property tax income tax credit.
Of more concern to the accountants is the raising of the minimum investment requirement to qualify for the High Performance Incentive Program administered by the Kansas Department of Commerce.
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HPIP was created in 1992 to encourage companies to invest in their business in Kansas and to raise employee wage and skill levels through a package of tax credits and sales tax exemptions.
Under the proposal, the minimum investment limit would be increased from $50,000 to $5 million.
Jerry Capps, AGH vice president for state and local taxation, said the stripping of some business tax credits, the raising of the investment threshold for HPIP and the fact that the expensing doesn't apply to the cost of expanding or renovating a building could encourage some Kansas companies to look at expanding outside the state. That's based on conversations with some AGH clients, Capps said.
"We're really taking away the incentives for our Kansas companies to invest in Kansas," Capps said.
But there is support for the proposal in some state business circles.
The National Federation of Independent Business supports the measure because it provides a tax incentive to all businesses, not select ones, said Dan Murray, state director for NFIB/Kansas.
Murray said many of the state's current business tax incentives that have a "high bar, are difficult to maneuver and provide those incentives for a selective few."
"For the vast majority of small businesses I can't see how expensing is not a good proposal," he said.
The commerce department said in the past two years 322 companies have used the HPIP program. But proponents of the expensing measure such as Murray said that's a small fraction of the more than 200,0000 businesses that operate in Kansas.
Business tax incentives with a broad effect is what Brownback proposed in his Economic Development Strategic Plan, unveiled last week.
"The policy challenge centers on promoting dynamism by establishing a business environment that induces the maximum amount of business birth and expansion without bias related to the size or type of business," the plan says.
The proposal is in the Senate and House tax committees this week.
How soon the proposal makes it to a vote in both chambers isn't clear. Officials said it could be as early as next week. Or it could be a few weeks away, they said.
One element that might change in the expensing proposal is the minimum investment requirement on HPIP.
Capps said when he was in Topeka on Wednesday testifying on the measure he heard the figure might be lowered.
Kansas Department of Commerce spokesman Dan Lara said Commerce Secretary Pat George told a Senate committee this week that the administration could be flexible on the minimum investment amount.
Lara said that regardless, Kansas companies currently participating in HPIP or those "in the pipeline" would not be affected by any changes to the program brought about by the expensing bill.