Kansas House rejects bill to roll back tax exemption for business owners

The Kansas House on Friday rejected an attempt to put business owners back on state income tax rolls.

SB 63 would have repealed an exemption that allows the owners of limited liability companies and other businesses to not pay state income tax. It would have gone into effect in 2017.

The bill was voted down 74-45 after a 20-minute debate.

Democrats, who long have called for a repeal of the exemption, split on the bill, with 14 for it and 12 opposing it.

“They got what they wanted, and they didn’t vote for it,” Rep. Joseph Scapa, R-Wichita, said after the vote.

House Minority Leader Tom Burroughs, D-Kansas City, defended his vote against the bill despite previous calls to roll back the exemption.

“It doesn’t get to the root of the problem. It’s a very small piece. If they were really serious about resolving the tax issue, they would have talked about all the tax policy,” Burroughs said. “Here we are late in the session once again, trying to do tax policy on the fly. While this is an important piece of the pie, this isn’t everything that needs to be fixed.”

The business income exemption was one piece of Gov. Sam Brownback’s 2012 tax cuts, referred to as the “march to zero.” In addition to exempting business owners, the state reduced income tax rates across the board.

Brownback has touted the business exemption as a way to spur job growth and has balked at rolling it back.

“The Governor does not believe taxing our small business job creators is the way to grow the Kansas economy,” Eileen Hawley, the governor’s spokeswoman, said in a statement earlier Friday.

Closing the exemption would have brought in $220 million annually, according to Rep. Mark Hutton, R-Wichita, the bill’s architect.

That wouldn’t have helped the state close its current budget gap, because it wouldn’t see that increased revenue until the 2018 fiscal year.

Hutton said the vote likely puts the issue to bed for the foreseeable future and means lawmakers may be forced to figure out a different way to pay for government.

“I think this is going to be very difficult going forward to roll anything back,” he said. “This was a benchmark that was going to be set for a long, long time … and personally I believe it has some ominous ramifications, but I’m not going to second-guess this body.”

Moderates

Moderate Republicans also refused to back the bill, which they saw as a trap.

“They were trying to catch people. This was a ‘gotcha’ vote. It had nothing to do with doing the right thing,” said Rep. Barbara Bollier, R-Mission Hills. “The right thing is to fix the problem. We need more than just this.”

Asked whether the Legislature should repeal the entirety of the tax cuts, Bollier replied: “No, we need to re-evaluate them. They need to be tweaked.”

A small coalition of lawmakers from both parties supported Hutton’s efforts to force a vote to roll back the exemption.

“It’s time to begin to fix this problem. We should have done it in 2013,” said Rep. Tom Sawyer, D-Wichita.

He recounted how, at a hearing of the House Taxation Committee earlier in the session, business owners from around the state came to tell lawmakers “please tax me.”

Rep. Sue Boldra, R-Hays, told colleagues that although the bill was not the whole pie, it would be “unconscionable for us to do nothing.”

However, another faction of lawmakers contended nothing about the tax cuts needs to be fixed.

“It’s not the government’s money,” Rep. Marc Rhoades, R-Newton, said, explaining during a House Republican caucus meeting Friday why he voted for the 2012 tax cuts.

This story was originally published April 29, 2016 at 12:07 PM with the headline "Kansas House rejects bill to roll back tax exemption for business owners."