Gov. Laura Kelly embraces not ‘perfect’ Kansas tax bill crafted by House, Senate negotiators

Democratic Sen. Tom Holland, left, and Republican Sens. Caryn Tyson and Virgil Peck chuckle in unison Wednesday during a House-Senate conference committee working out details of changes to state property, sales and income tax policy. (Kansas Reflector screen capture from Kansas Legislature's YouTube channel)

TOPEKA — Democratic Gov. Laura Kelly endorsed the tax-relief bill negotiated Wednesday by a Republican-led committee ending the food sales tax early, exempting from income tax all Social Security benefits, expanding the residential property tax exemption, increasing the standard deduction for income tax purposes and cutting the top income tax rate.

The recommendations of the six-member House and Senate conference committee that were incorporated into House Bill 2036 included tax-policy supported by both chambers and tax changes not envisioned by either chamber.

The House and Senate agreed to end the state’s 2% sales tax on groceries July 1 instead of Jan. 1 and supported eliminating the state income tax on Social Security benefits.

The Senate had sought a single-rate income tax favoring wealthy Kansans. The House supported a two-rate model that lowered income tax rates across the board. Under the deal, however, the state would retain a three-rate structure. The upper-bracket rate would be cut from 5.7% to 5.5%, but nothing would be done to alter the 5.25% middle bracket and the 3.1% bracket for those with modest incomes.

While neither the House or Senate have voted on the package, Kelly said in a message addressed to Democrats that the bill “does not represent the perfect tax plan” but did provide “substantial tax relief for all Kansans.”

She touted the bill’s estimated $67 million increase in the standard deduction for income taxes — up 43% for single filers and a boost of 25% for those married filing jointly and the head of households. She said it was the largest such increase written into any tax bill this session. The House-passed bill would have raised the married filing jointly standard deduction from the current $8,000 to $8,240, but the new agreement pushed that deduction to $10,000.

In personal terms, the new standard deduction would provide $60 in tax relief for those earning $50,000 annually and a $50 tax cut for those earning $100,000 annually.

In January, Kelly vetoed Republican leadership’s initial tax overhaul bill. Failure to override the governor sent the Legislature into a two-month scramble for an alternative. This bill came together two days before the Legislature was scheduled to adjourn for three weeks.

“I intend to sign this bipartisan compromise when it reaches my desk,” Kelly said.

The cost to the state treasury of HB 2036, and the fiscal estimate for the cluster of other tax bills proposed by the conference committee, hasn’t been made public.

On Thursday, the governor met with House Democrats in a bid to convince them to support the conference committee’s bill when it came to the House.

Rep. Rui Xu, D-Westwood, said on social media that he was concerned the bill supported by Kelly would lower the state income tax for those in the upper bracket but not reduce rates in the lower two brackets.

“This is absurd. If you want to make a cheaper plan, then cut money at the top, not the bottom,” he said.

The fine print

Under the negotiated tax bill outlined by Weskan GOP Rep. Adam Smith, Kansas homeowners would be allowed to exempt the first $100,000 of assessed valuation from residential property tax collected for K-12 public schools. The current exemption stands at $40,000. The bill also would lower the statewide mill levy for K-12 education to 19.5 mills, down from 20 mills. The House bill would have reduced it to 18 mills. House Speaker Dan Hawkins, R-Wichita, said that reduction in property tax revenue for public education would be replaced by drawing upon the state general fund.

The compromise bill featured a $60 million child- and dependent-care tax credit. That was in the Senate’s latest tax plan, but not the House’s. Both chambers had previously voted to grant a business tax break to financial institutions, deliver the $120 million income tax exemption for Social Security and cut state revenue $63 million by speeding up the food sales tax repeal.

“I know this is probably not what either one of us would have created,” said Smith, chairman of the House tax committee. “I completely respect our leadership and the balance they have to find — to find something that can move forward.”

Sen. Caryn Tyson, the Parker Republican and chair of the Senate tax committee, said “we do understand the position we’re in and we are willing to accept your offer.”

Wichita Rep. Tom Sawyer, the lone House Democrat on the conference committee, said he didn’t like the tax package.

“I want to make it clear, I’m not going to vote for it,” Sawyer said.

Tyson added: “You might not be alone.”

The negotiators pushed on through a full day of deliberations to address dozens of tax proposals brought forward by special interests or legislators.

During a lull in the afternoon negotiating session, Tyson spoke in a hushed tone to her negotiating partners Republican Sen. Virgil Peck and Democratic Sen. Tom Holland about how pleased she was with progress in negotiations. Tyson, who apparently didn’t realize her microphone was turned on, turned to Holland and said what sounded like, “You guys are so f***ed.” The video showed Tyson and Holland chuckling.

Subsequently, Tyson said she didn’t use a curse word during the conference committee meeting and wouldn’t express herself with that sort of language. She said the remark was: “You guys are so funny.” In a separate interview, Holland said he agreed with Tyson that her statement was about people being humorous.

Additional tax breaks

In terms of sales tax breaks, the House and Senate negotiators endorsed a $17 million exemption for telecommunications infrastructure, a $1.7 million exemption for custom meat processing services, a $100,000 exemption for Exploration Place in Wichita and a $600,000 exemption for Kansas Children’s Discovery Center in Topeka.

There were sales tax exemptions for state schools for blind and deaf students and a sales tax benefit related to manufacturer’s coupons. The joint committee agreed to a $33 million sales tax exemption for disabled veterans, but that piece wouldn’t be initiated for another year.

On property taxes, the negotiators supported a personal property tax exemption for ATVs, trailers, watercraft, snowmobiles, dirt motorcycles, electric wheelchairs and golf carts. County clerks told legislators the revenue wasn’t worth the hassle of tracking down owners of that property and securing compliance in terms of paying about $13 million in property taxes.

In addition, negotiators included a “golden years” homestead tax refund for elderly Kansans. A 75% property tax refund from the state for disabled veterans was added to the legislation to replace an exemption that would have narrowed the tax base in counties with large populations of military retirees.

Those on the conference committee agreed to insert into a bill the controversial idea of allowing owners of child care facilities, fitness clubs and restaurants to avoid property taxes if any state or local government entity began offering those services in competition with an existing business. The idea was result of years of lobbying by owners of the Wichita-based Genesis Health Clubs, who argued the Wichita Boys and Girls Club were unfairly undermining Genesis’ operations.

“I think it will be one of those programs that we will be working on for a year or two,” Tyson said. “But, at least, it’s a start.”

(This story has been updated to include comments from Sen. Caryn Tyson, R-Parker, and Sen. Tom Holland, D-Baldwin City, to say both believe Tyson didn’t use a curse word during a House and Senate conference committee on tax legislation.)

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