This Week in Topeka
February 8-12, 2021
Business, Economic Development & Local Government News from the Legislative Session
Despite the unusually quiet halls of the capitol due to COVID concerns, the legislature hit full stride with bill introductions, committee work and a fair amount of floor action. The Senate took center stage on Tuesday when they spent several hours debating SB 22 (details below) and again on Thursday with debate on controversial expanded eligibility for the Low-Income Student Scholarship Program (SB 61).
Budget committees are beginning to advance their budget proposals and we will soon get a better look at a comprehensive budget proposal for the next fiscal year.
On a sad note, news broke that Senator Bud Estes (R – Dodge City) passed away early Saturday morning. Senator Estes was well-liked by both sides of the aisle and was a strong advocate for southwest Kansas. As has been stated in numerous statements from his colleagues, Senator Estes will be greatly missed.
Unemployment – The unemployment system and trust fund continued to receive tremendous attention this week. After a couple of weeks of hearings, the House Commerce, Labor and Economic Development Committee started deliberations on HB 2196. Look for this committee to wrap up their work and advance an amended bill to the full House for consideration soon. The Senate Commerce Committee will begin hearings on an identical bill (SB 177) the week of February 15.
Upgraded identity verification procedures instituted by the Kansas Department of Labor (DOL) in early February appear to be having a positive impact on fraud. The DOL reported via a press release that “the agency’s new identity verification software system has blocked over one million fraudulent login attempts and BOT attacks since it went live on Feb. 2.”
Taxes - SB 22 started as this year’s response to the federal tax changes brought about by the federal Tax Cuts and Jobs Act (TCJA) of 2017. Since Kansas automatically conforms to federal tax code changes, the TCJA created taxes on businesses previously not taxed in Kansas. The focus of the bill has largely been on decoupling from those changes with a few other provisions added in. However, finding the right mix of changes with an acceptable fiscal note has proven elusive. Last week the Senate Assessment and Taxation passed out SB 22 with the hopes they had found the right mix.
That changed Tuesday when vigorous floor debate significantly modified the bill and brought uncertainty to the revised fiscal note. Estimates on the fiscal note range somewhere in the $450 million to $600 million range with most believing the impact is at the lower end of that scale. The bill passed 24-15 leaving open concerns the Senate may not be able to override a potential gubernatorial veto should the proposal make it to Governor Kelly’s desk.
In addition to the changes driven by the TCJA that have been reviewed in previous editions of this report (GILTI, FDIC premiums, PPP adjustments and the expensing deduction for small businesses) the bill now also includes:
- An increase in the standard deduction for single filers from $3,000 to $4,050 and for married filers from $7,500 to $10,125. Both increases would be phased in over two years.
- The ability for Kansas tax filers to itemize on their state return even if the filer opts for the standard deduction on their federal return.
- A provision that allows Social Security benefits and other retirement benefits to be exempted from state taxation beginning in Tax Year 2021.
Attempts were made to amend the bill further to include taxes on digital goods and subscriptions, but that amendment failed. Taxing these items is seen as a fairness issue in that brick-and-mortar stores on Main Street are required to collect and remit taxes to the state while many internet transactions go untaxed and lead to a price advantage over locally-owned stores.
As the session moves forward, look for additional discussion around taxation of internet transactions, digital goods, and transactions by marketplace facilitators. As reported previously, legislative committees have held hearings on several of these proposals including marketplace facilitators as detailed in HB 2173 and SB 50.
Commercial Property Tax Reimbursement – Two bills, SB 149 and HB 2142, have been introduced to address concerns regarding business shutdown orders issued by counties. The bills are largely in response to actions that occurred during the COVID pandemic.
HB 2142 was the subject of a hearing on Tuesday in the House Taxation Committee. Under the terms of the bill, the county would be required to reimburse property owners one-twelfth of their property taxes for each month of an ordered full shutdown or a modified amount for orders that address capacity restrictions. Reimbursements would require property owners to submit valid applications.
Incentives – Legislative committees continue to give attention to economic development incentives. While some see these incentives as a drag on the economy, others believe the tools are critical to competing with other states. Economic development professionals across the state are focused on refining the currently available tools in Kansas to ensure effectiveness while maximizing the return on investment for taxpayers.
STAR Bonds - this program is set to expire this year without legislative action. SB 124 was passed out of the Senate Commerce Committee this week on a close 5-4 vote. The bill not only extends the program but puts additional provisions in place – including third-party economic evaluation of proposals. The House has not yet scheduled their version of the bill (HB 2221) for a hearing.
HPIP – the High-Performance Incentive Program is the subject of two different bill concepts. One (SB 65 and HB 2097) revises the program to decouple it from other training programs in the state while a second bill (SB 91) seeks to allow HPIP recipients to sell earned tax credits to make the program more competitive with similar programs in other states.
SB 65 was assigned to the Senate’s Consent Calendar but was removed and placed on General Orders signaling potential concern with the bill. HB 2097 has been recommended for passage and SB 91 received a favorable recommendation by the Senate Commerce Committee on Thursday.
Angel Investors – SB 66, the Senate’s angel investor bill was removed from the Senate Consent Calendar and placed on General Orders where debate was expected Thursday. A time-consuming debate on another bill delayed the Senate’s consideration of the bill for now. The House version of the bill, HB 2045, received a favorable recommendation from the House Commerce Committee and waits for consideration by the full House. Like SB 65 dealing with HPIP, the move to pull the bill off the consent calendar signals some degree of concern with the bill language.
Single Factor Apportionment - HB 2186 allows certain business entities to choose single factor apportionment over the current three factor apportionment method when calculating their state taxes. The bill was assigned a hearing date for Tuesday, Feb. 16.
The bill currently limits the election opportunity to certain business in the agriculture and manufacturing industries by designating specific eligible North American Industry Classification System (NAICS) codes in the legislation.
The current allowable system in Kansas, the three-factor apportionment method, uses ratios of in-state vs out-of-state calculations on property, payroll, and sales figures to calculate tax liability. Single factor apportionment confines the tax liability calculations to sales figures only. Currently more than half the states in the United States allow for single factor apportionment.
SB 148 – Exempts grocery stores from the sales tax assessments for community improvement districts.
SB 149 – Reimbursement of property taxes from a county government for business shutdown or capacity limitation caused by the county.
SB 171 – Reduces the state sales tax on food and food ingredients to 3.5% over three years.
SB 213 – Prohibits an employer from taking any adverse action against an employee due to an employee’s vaccination status.
HB 2105 – Establishes tax withholding requirements when certain employees work in multiple states. withholding in multiple states.
HB 2199 – Authorizes sports wagering under the Kansas expanded lottery act. (This bill is scheduled for a hearing on 2/17 and 2/18. A similar bill, SB 84, was the subject of a committee hearing earlier this week)
HB 2239 – Extends the Kansas corporate income tax net operating loss carryforward.
HB 2370 – Prohibits a criminal conviction from being the sole disqualifying factor for occupational licensure.