Capps Manufacturing is a Subchapter S corporation company under the IRS tax code. The profits are passed through to the owners, and profit is reported to the IRS. The Kansas tax policy exempts S corps from state income taxes.
A few things need to be mentioned about the state tax policy for small businesses that never seem to be mentioned in the debate. First, the IRS requires me to take an earned income that would be competitive for what my position would be if I were an employee. That earned income is reported on a W-2 form, and I pay Kansas state taxes on this income, just like anyone else who receives a W-2. So I am offended when I’m told I do not pay my fair share of taxes.
I guess the money that some people think should be taxed (which the federal government does tax) is the pass-through profits from the company. That money does not go into my personal bank account for my personal use. It stays within the company.
It takes a lot of cash to operate a manufacturing company. You need cash to pay vendors on time and to ensure payroll can be met. In addition, this money is used for expansion. In 2015 we purchased more than $1 million of new equipment. In the past two years, we added 15 full-time jobs. Those jobs are well above minimum wage and come with benefits.
Some say that businesses don’t hire new employees because they get a tax break. I will agree with that. If I have no work, I don’t need employees.
However, this is how the tax exemption works: When businesses get to keep more cash, they are able to leverage that cash to get loans to purchase new equipment, adding capacity and/or capabilities. You need to hire more employees to operate the new machines with the new work, which also creates more openings for additional support personnel. So indirectly, the tax-exempt policy does create jobs.
Something else to consider is that we have been contacted over the past several months by representatives from North Carolina, Nebraska, Missouri, Arkansas, Oklahoma, Texas and Mexico about the possibility of relocating in their area. Last week, an economic development representative from Austria called and asked what it would take to relocate.
I was born and raised in Wichita and am proud to be a Kansan. We have little desire to relocate. But if they are approaching us to relocate, I’m sure they are also asking other small businesses.
Maybe some small businesses are taking unfair advantage and aren’t doing what the tax policy promotes. I don’t know. But during your criticism and debate of the policy, please remember those that are.
Ron Capps is vice president at Capps Manufacturing in Wichita.