Kansans will get a tax increase unless the Kansas House and Senate adopt legislation that mirrors federal tax reforms before the session ends on May 4. House members adopted a $16 billion budget over the weekend, and now they’re hoping the Senate will concur on a burgeoning budget that adds $1.1 billion in new spending over the next two years.
The new spending includes $8 million in new funding judicial branch employee raises, another $12 million in new funding to public universities, and some repayment to the state’s public pension system. The plan also includes increased funding to Kansas schools.
Paying for it all requires lawmakers keep a federal tax reform windfall, instead of syncing state income tax laws to federal ones and passing the savings onto taxpayers. The Kansas Department of Revenue estimates the windfall will pad the state’s budget to the tune of $505 million over the next three years.
If the state keeps the money, some of it would be money due individual taxpayers. Some
would come from taxing foreign, repatriated income. Those funds are pay-fors at the federal level to lower rates, but taxing it at the state level is unchartered territory, according to experts.
The Kansas Senate passed a bill to return the so-called federal windfall to taxpayers, but Eric Stafford, vice president of governmental affairs at the Kansas Chamber of Commerce says the bill, which has yet to be considered by the House, will need to be cleaned up. As currently proposed, the legislation includes a provision to tax repatriated, deferred foreign income.
“States have never taxed foreign income before,” Stafford says. “It’s a source of taxation that some are arguing is unconstitutional, and it would be an accounting nightmare to implement.”
A key component of the federal tax reform Congress passed last year was making taxation conditions more favorable so corporations doing business in other countries would bring the money back to the U.S. rather than park it overseas. Congress made changes to the Global and Tangible Low Tax Income, or GILTI, with the hopes that U.S. corporations would bring home some of the estimated billions they have sitting offshore.
The way the Senate bill is worded, some Kansas companies would pay more GILTI funds to the state of Kansas than what they’ll pay to the feds if they decide to repatriate that money. Stafford says it’s a problem lawmakers should fix as they wrangle with the federal windfall. There’s no guarantee legislators will do anything at all.
“Legislators want some money to spend. We want to fix the problems,” Stafford says.
If lawmakers do nothing, all Kansans get a tax increase. If the House adopts the Senate’s proposal without any changes, individuals get to keep more of their own money, but offshore businesses will take a big hit when they bring money home.
Though many lawmakers are refusing to call it a tax increase if lawmakers do nothing to sync federal and state incomes tax laws, Rep. Jene Vickrey says otherwise.
“When the taxpayers pay more, it’s a tax increase,” Vickrey, a Louisburg Republican says. “You can say you’re not raising taxes, but I don’t know how you explain that any other way. If the taxpayer is writing a bigger check to Kansas, it’s a tax increase.”
