TOPEKA — The House overwhelmingly voted down a bill that would have raised sales and cigarette taxes while protecting the bulk of 2012 tax cuts for pass-through businesses.
It was the House’s first try at generating revenue needed to close a roughly $400 million budget gap that has caused gridlock in the legislative session.
If lawmakers don’t pass a tax plan and budget by the weekend, it could trigger furloughs of state workers and a partial government shutdown.
The vote on the plan Thursday was 108-3 against.
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Most opposition focused on a provision to raise sales taxes to get about half the revenue needed to close the budget gap for 2016, $214 million.
Under the proposal, the sales tax would have risen from the current 6.15 percent to 6.65 percent on July 1. On Jan. 1, the sales tax on food would have dropped to 5.9 percent.
Rep. Steven Johnson, R-Assaria, said the increase would push some combined state and local sales tax rates to 10.2 percent.
“By the way, that’s higher than New York City,” he said.
Opposition also surfaced over part of the proposal that largely left intact 2012 tax cuts for pass-through businesses.
The 2012 plan created a zero tax rate for owners of limited liability companies, farms, sole proprietorships and corporations organized under Subchapter S of the federal tax code.
Those are called “pass-through” businesses because the companies themselves are not taxed and owners theoretically pay income taxes on their individual returns.
The House proposal followed Gov. Sam Brownback’s request that only guaranteed payments to those business owners be subject to income tax.
Critics contended that accountants could easily circumvent the requirement for their business-owning clients.
Rep. John Carmichael, D-Wichita, said the 2012 Brownback tax plan was the biggest gift he ever got because as a lawyer in an LLC, he pays no income tax.
“It’s a gift I didn’t ask for and a gift I didn’t need,” he said, criticizing the unfairness of lawyers in the firm paying no income tax while the office assistants and janitors do.
Rep. Steve Huebert, R-Valley Center, made one of the few speeches in favor of the bill.
He acknowledged that it was an imperfect bill, but said there are no perfect ones.
He called on lawmakers to compromise and pass the bill, which was close to the plan Brownback suggested last weekend.
He said that would avoid a governor veto, which the Brownback administration has threatened if the bill cuts too deeply into the business tax exemption.
After the vote, the bill was sent back for a rework by the House-Senate tax conference committee that had sent it to the floor earlier in the day.
The committee announced it would meet at 7 p.m. But since the Senate had adjourned for the day, it turned out to be impossible for the conference committee to hold the meeting and comply with the rules of the Legislature.
Committee members said they plan to work on a new tax plan Friday morning.
Reach Dion Lefler at 316-268-6527 or firstname.lastname@example.org.