Unless Governor Laura Kelly wields her veto pen on SB 169, Kansas taxpayers can look forward to $1.4 billion in tax relief over the next three years. House Substitute for SB 169 (SB 169 for ease of reference) passed the House last week by a vote of 85-38 and by a 24-13 vote in the Senate. The vote was largely along party lines, although two Republicans (Brenda Dietrich and John Doll) voted against it in the Senate and one Democrat (Marvin Robinson) voted for tax relief in the House.
The largest piece of tax relief is on individual income tax ($881 million), followed by food sales tax ($228 million), property tax ($130 million), and corporate income tax ($115 million). Senator Caryn Tyson (R-Parker), who chairs the Senate tax committee, says SB 169 is a big win for taxpayers. “Finally, tax relief for all Kansas taxpayers. Sales, property, and income tax relief that makes the Kansas taxpayer a priority, not growing government. Throughout my time in the legislature, I have fought for tax relief and for fiscally responsible policy. Senate Bill (SB) 169 is a major success in those efforts.” Legislators are cautiously optimistic that they can override Governor Kelly if she decides to veto the bill.
Individual income tax relief
SB 169 contains three types of income tax relief for individuals, the largest of which is a flat income tax rate of 5.15%. Currently, taxable income of the first $15k single/$30k married is taxed at 3.1%. That bracket and the top bracket (5.7% on income above $30k single/$60k married) are eliminated and all taxable income above $6,150 single/ $12,300 married will be taxed at 5.15%. Exempting some income from taxation ensures that all taxpayers get relief. Eric Stafford, Vice President of Government Affairs for the Kansas Chamber, says getting the top rate to 5.15% is good, but Kansas would still be “middle of the road” in the region. “We will be working to finalize a growth trigger for the 2024 session to help buy down the personal and corporate income tax rate over time by allowing for inflationary growth in state receipts. As the revenues hit certain levels, the trigger mechanism kicks in to lower rates to the desired rate.” Additionally, the exemption for Social Security income is expanded. Social Security is currently exempt for those with $75,000 or less of federal adjusted gross income (FAGI), but it is fully taxed if FAGI is $75,001 or more. Beginning this tax year, SB 169 provides partial eligibility for the exemption to people with incomes between $75,000 and $100,000 through this formula:
- Subtract an amount equal to the federal adjusted gross income of a taxpayer from 100,000 (the result must be greater than zero);
- Divide the result 25,000; and
- Multiply the result by the amount in dollars received as benefits under the federal social security act that are included in federal adjusted gross income of that taxpayer to determine the modification.
For example, a taxpayer with $90,000 FAGI and taxable Social Security income of $40,000 would have $16,000 of Social Security exempt for state income tax. The savings grows over time because increases for the upper limit for eligibility are included.
Finally, the standard deduction for single and married filers will be increased for inflation.
Food sales tax relief
SB 169 accelerates the elimination of the state sales tax on food and food ingredients to 0.0 percent to January 1, 2024. Under current law, the rate is scheduled to be reduced to 2.0 percent on January 1, 2024, and to 0.0 percent on January 1, 2025. Cities and counties will continue to charge local sales tax on food. Attempts to eliminate the local sales tax on food were strongly opposed by local officials.
Property tax relief
The residential exemption from the statewide 20 mills of property tax collected for the support of public education is doubled from $40,000 to $60,000. The property tax savings and Social Security exemption are especially important to seniors. Last year, Kiplinger ranked Kansas as the third-worst state in the nation for taxation on retirees.
Corporate income tax relief
Currently, corporations pay a normal income tax rate of 4% plus a 3% surtax. The normal rate is already scheduled to drop to 3.5% this year and SB 169 reduces the rate to 3% beginning 2024. The surtax remains at 3%. For banks, the normal tax rate is reduced from 2.25% to 1.625%. Trust companies and savings and loan associations will get a drop in the normal rate from 2.25% to 1.61%.
