A sweeping plan that would affect how much Kansans pay for groceries and what corporations owe in taxes may soon head to Gov. Laura Kelly, who vetoed a similar bill earlier this year.
Under it, the state is projected to take in $245 million less in revenue over the next three years. The House is expected to debate the bill soon, after the Senate approved it 27-13 on Thursday.
Although the new bill is different in some ways from the vetoed one, Democrats continue to condemn it as a corporate handout and Republicans counter that it returns to taxpayers money the state shouldn’t be collecting.
“The bill should have passed last year. Businesses and individuals should have had tax certainty last year,” Senate President Susan Wagle, R-Wichita, said.
Kelly, a Democrat, vetoed the first bill in March. Lawmakers didn’t try to override her decision, unable to summon enough votes.
She appears ready for a repeat.
Before the Senate debate, the governor called previous tax changes over the past several years impulsive and poorly reviewed. She said she welcomed the input of lawmakers and others in reforming the state’s tax code in the future.
But above all, “I believe this discussion should be guided by a thoughtful, data-driven, big-picture vision for Kansas – not by a hasty attempt to achieve an immediate political victory,” Kelly said in a statement.
Senate Minority Leader Anthony Hensley, D-Topeka, was more blunt.
“This bill is destined for a veto,” he said.
The new plan is different from the original in several key ways. It drops some expensive business tax provisions and ties any reduction in the sales tax rate on food to new tax revenues from purchases made online.
The cost to the state is roughly half the size. The legislation vetoed in March would have stopped Kansas from collecting some $500 million over three years.
The bill includes permitting deduction of so-called global intangible low-taxed income, or GILTI. It means that multinational corporations could bring profits earned overseas back to the state without having them taxed as income.
The bill allows taxpayers to itemize their state taxes even if they don’t itemize at the federal level, a change called decoupling. Because of a mismatch between federal and state tax law, Kansans now can’t itemize their state income taxes unless they itemize federal taxes.
Under the new proposal, the sales tax on food would fall over time based on a formula that funnels additional revenue collected from internet purchases.
Kansas has one of the highest sales tax rates on food in the country, at 6.5 percent. Legislative researchers predict the sales tax rate on food would drop to 6 percent by 2021.
Sen. Rob Olson, R-Olathe, said he has heard a lot of talk about reducing the food sales tax during his 15 years in the Legislature.
“This is the first one that takes steps to move forward,” Olson said.
Kelly said in her statement that lowering the food sales tax is one of her highest priorities for tax reform. But she has also repeatedly said Republican-driven tax changes risk returning Kansas to the budget turmoil seen under Gov. Sam Brownback.
Tax reform provides an opportunity to reshape Kansas for the better, she said, adding that it’s her job as governor to “make sure we get it right this time.”
“I look forward to working collaboratively and thoughtfully with stakeholders to achieve that goal in the future,” Kelly said.
Kansas is one of only 14 states to tax food and among only seven that tax food at the full sales tax rate. Neighboring Missouri taxes food at a rate of about 1.2 percent, for example. In Colorado and Nebraska, the rate is zero.