Kansas House approves property tax classification

TOPEKA – Kansas House members approved a bill Thursday seeking to buy time for defining what constitutes real and personal business property.

The 103-21 vote sends the measure to the Senate with time running out on the 2012 session. Thursday was the 89th day of the scheduled 90-day session.

At issue is property that has previously been exempt from property taxes because of abatements granted by cities and counties. As those abatements expire, the property must be classified as either real or personal for tax purposes.

Legislators approved a bill in 2006 that removed business machinery and equipment from tax rolls to stimulate economic development and investment. However, the 2006 law failed to provide an accurate definition of property.

Legislators want to take two years to define real and personal property. Their goal is to prevent previously exempt equipment from being reclassified as real property, forcing higher property taxes on businesses.

Rep. Marvin Kleeb, an Overland Park Republican, said defining property will give businesses more certainty about their taxes and prevent abated equipment and machinery from becoming taxable overnight. He said the potential is for companies to see tax bills double or triple if equipment is reclassified as real property.

“How are they going to compete when they are getting their taxes hit that bad,” Kleeb said. “A lot of states want to come in here and take away our companies. It's a real threat.”

The bill was backed by the Kansas Chamber of Commerce and Coffeyville Resources Nitrogen Fertilizers, which is facing an annual tax bill that's $11 million more than it anticipated in Montgomery County.

Montgomery County and Coffeyville Resources are locked in a legal dispute over how the county appraiser valued its equipment. The issue is whether it is considered “real” property as land and buildings are, or “personal” property as other business equipment often is. The dispute is likely to go to the Kansas Supreme Court at some point.

The company contends its property should be valued at $26 million, while the county puts the value at more than $300 million. Coffeyville Resources was expecting a property tax bill of between $1 million and $2 million for 2011. Instead, the company was told to pay $13.7 million, which it has been paying under protest for three years.

Rep. Virgil Peck, a Tyro Republican whose district includes Coffeyville, said legislators should fight to prevent cities and counties from losing millions in taxes by creating rules that may favor certain businesses and industries.

“I don't' think picking winners and losers is a good thing,” he said.

Under the proposed legislation, the state would not get involved in settling the Montgomery County dispute, but it would prevent any property coming out of local tax abatements from being reclassified until the definitions are approved.