AP: Kansas officials struggle with corporate income tax
TOPEKA (AP) — Republican officials in Kansas are interested in lowering corporate income taxes but acknowledged Friday that they're struggling to figure out how they'd mesh such reductions with GOP Gov. Sam Brownback's plans for more cuts in individual income tax rates.
Revenue Secretary Nick Jordan told reporters during a briefing on tax issues that reducing corporate income tax rates would boost the state's economy, but he described the issue as complicated. Brownback hasn't proposed such a step, but Jordan said the idea remains under discussion.
The Kansas Chamber of Commerce favors including corporate income tax reductions in a broader package of tax legislation. The business group has seen its influence with the Republican-dominated Legislature grow because of its support last year for conservative GOP candidates.
The tax plan Brownback outlined this year is designed to close a budget shortfall, leave the state with healthy cash reserves through June 2015 and still allow the state to further lower individual income tax rates. Last year, the state aggressively cut individual income taxes to boost its economy, but that resulted in a projected $267 million gap between anticipated revenues and existing spending commitments for the fiscal year beginning in July.
Brownback's plan phases in further cuts in individual income tax rates over the next three years but eliminates two popular income tax deductions for homeowners and keeps the state's sales tax at its current rate, rather than fulfilling a promise to drop it in July. The governor's goal is to put the state on what Budget Director Steve Anderson calls "the glide path to zero" on individual income taxes.
But Senate President Susan Wagle, a conservative Wichita Republican, said some businesses would like to see corporate income tax cuts. Rep. Marvin Kleeb, a conservative Overland Park Republican, called reducing corporate income taxes "the next solid idea for economic development."
"Yes, there's interest, but no one knows how to pay for it," said Kleeb, the House commerce committee's chairman and a member of its tax and budget committees. "We need to take a look at our corporate rates."
Last year, the state cut individual income tax rates, increased standard income tax deductions and exempted the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. The last break was targeted at owners who were required to report business earnings on personal income tax returns.
About 30,000 businesses file corporate income tax returns in Kansas, facing a top rate of 7 percent. The corporate income tax is expected to generate about $360 million during the next fiscal year.
But Jordan told reporters that 59 percent of corporate income tax filers, roughly 18,000, don't pay any taxes, partly because of a slide in profits tied to the Great Recession and partly because the state has expanded tax credits and incentive programs to encourage firms to come to Kansas or expand operations in the state.
"We've been engaged over the last two years with a lot of folks talking about corporate income tax," he said.
But the reliance on tax credits and incentives to spur business activity hinders any move to phase out the corporate income tax, Anderson said.
"Until they agree to give those up, you can't go to zero on the corporate tax," Anderson said.
Meanwhile, outnumbered Democrats also are skeptical. House Minority Leader Paul Davis, a Lawrence Democrat, said last year's tax changes are encouraging corporations to reorganize as partnerships and other entities so their owners can avoid paying income taxes.