Tax cheats, exemption unfair

It’s unfair that some Kansans aren’t registering their vehicles with the state, and that many Kansans don’t have to pay taxes on pass-through income.
It’s unfair that some Kansans aren’t registering their vehicles with the state, and that many Kansans don’t have to pay taxes on pass-through income.

It’s frustrating and unfair that some Kansans register their vehicles in other states to avoid paying Kansas personal property taxes. But as reported in the Sunday Eagle, cracking down on these cheaters isn’t easy and not always cost effective.

Meanwhile, an article in Monday’s Eagle reported that many Kansans are frustrated that some business owners don’t have to pay state income taxes on their pass-through income. Fixing that unfairness isn’t nearly as complicated.

The vehicle-registration article was part of The Eagle’s new Curious Wichita feature, in which readers pose questions for The Eagle to investigate. Two readers asked what could be done about people who live and work in Kansas but illegally register their vehicles in other states.

One of the things Eagle reporter Oliver Morrison learned is that no one knows the size of this problem. The Kansas Department of Revenue doesn’t monitor the issue, and the Kansas Highway Patrol doesn’t track how many tickets it issues for registering a vehicle in the wrong county or state.

Also, though it is not uncommon to see cars and trucks in Kansas with Oklahoma and Texas license plates, that doesn’t necessarily mean a person is breaking the law.

Kansas allows people 90 days to register their vehicles after moving to the state (other states have shorter deadlines). But the law exempts active military personnel and out-of-state college students.

Another challenge is that it can be costly to catch and prosecute people for illegal registrations. And because vehicle tax revenue is divided among many different taxing entities – including cities, school districts, townships and the state – it can be difficult to recoup the enforcement costs. Sedgwick County disbanded its collection unit in 2008 as part of budget cuts.

However, there are some low-cost options to help with enforcement, such as providing a website and phone number for people to report suspected cheaters. Sedgwick County has a form on its website, but most people aren’t aware of it.

Kansas likely is missing out on several million dollars a year in taxes by people illegally registering their vehicles in other states. But as the Monday article noted, the state is losing much more from people legally taking advantage of the state’s income tax policy.

As part of the 2012 tax cuts, about 300,000 business owners in Kansas don’t have to pay state taxes on pass-through business income. Not only do many Kansas wage earners think this is unfair, so do some of the business owners receiving the tax break – especially when the state is facing serious budget problems.

The exemption is costing Kansas about $260 million a year in revenue. And contrary to what Gov. Sam Brownback promised, it hasn’t acted “like a shot of adrenaline into the heart of the Kansas economy.”

Rescinding this policy is not complicated. The only obstacle has been the refusal of Brownback and some state lawmakers to admit their mistake.