A national tax group says Kansas’ overall tax climate has improved more than any other state in the past year, but it dubbed the structure of some tax cuts “a gimmick.”
The Tax Foundation, in its 2014 State Business Tax Climate Index, moved Kansas to 20th of the 50 states, up from 26th last year.
The Legislature this year cut income tax rates to 4.9 and 3 percent, from their previous levels of 6.45, 6.25 and 3 percent. It also raised the standard deduction to $9,000.
Overall, the foundation was obviously impressed by the lower rates, but it’s what the Legislature did to cut business taxes that drew the foundation’s skeptical eye, said Scott Drenkard, an economist for the group.
The state exempted the income coming into an estimated 191,000 sole proprietors, S corporations and limited liability corporations. Previously, income flowed through those companies and was taxed at the owners’ personal income rate. On the other hand, C corporations, which tend to be large, remain taxed at their old levels.
Drenkard said the move encouraged C corps to shift their registration, distorting the market. It also encouraged employees to become contractors, in effect, sole proprietorships.
“It’s a bit of a gimmick,” Drenkard said. “We’d rather see broader tax relief and lower rates. So, its’s a mixed bag.”
Texas dropped out of the top 10 for the first time, landing at 11th, in the most recent ranking. Other than Florida, there are no longer any Southern states in the top 10.
The top 10 are, in order: Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, Montana, New Hampshire, Utah and Indiana.
The foundation’s 10 lowest-ranked states are Maryland, Connecticut, Wisconsin, North Carolina, Vermont, Rhode Island, Minnesota, California, New Jersey and New York.