Calling it “punitive,” Kansas Secretary of State Kris Kobach said he opposes a part of Gov. Sam Brownback’s budget plan to increase fees for registering small businesses with the state.
Kobach’s office is responsible for handling business filings in the state. One piece of Gov. Sam Brownback’s budget proposal would increase the fee paid by limited liability corporations (LLCs) from $50 to $610.
LLCs are at the center of a political controversy, because a 2012 tax policy eliminated the taxes LLCs pay on their business incomes. Brownback vetoed legislation to eliminate that exemption and raise income taxes on the middle class, and Kobach urged legislators to oppose increasing business fees.
“This fee increase will kill mom-and-pop shops, startup businesses and family farms across our state,” he said.
Approximately 85 percent of Kansas LLCs earned less than $25,000 last year, and Kobach said as a practical matter these businesses are being taxed. He cited a person who does photography as a side business as an example. The LLCs’ earnings are passed through to the individual as income and taxed, Kobach explained.
He warned that many LLCs will shut down if faced with a fee hike, and others will simply move across state lines. Kansas’ existing $50 filing fee is one of the most expensive in the region.
The highest fee in neighboring states is $25 in Oklahoma. Missouri doesn’t charge a business filing fee.
“If you live on the Kansas City area, you move your business to Missouri. It’s easy just to move your business just across the state line,” he said.
New businesses will forego filing as LLCs, opening entire families to legal liabilities that could destroy them, Kobach said.
Kobach warned against replacing the LLC-tax exemption with a 1,120 percent increase in filing fees. He opposes legislative proposals to revoke the LLC income tax exemption as well.
“That would take away a competitive advantage we have. The LLC tax exemption is a positive thing,” Kobach said at a press conference. “We have seen business formation. We shouldn’t abandon the idea of keeping Kansas an especially friendly state for business innovation.”
The state faces a $280 million gap between proposed spending and anticipated revenues this year, but Kobach said legislators should look to cutting spending rather than increasing taxes and fees.
“I don’t think Kansas has a revenue problem,” Kobach said. “Kansas has a spending problem.”