Kansas could phase out its corporate income tax under a measure that also would expand its incentives for attracting new businesses, and the provision is a problem as lawmakers rush to help the state attract an undisclosed multibillion-dollar project.
The state House Commerce Committee’s leader on Thursday derided the measure as “messed up” and delayed a vote until Monday on a bill authorizing hundreds of millions of dollars in incentives for billion-dollar business projects. The Senate approved the measure with bipartisan support last week, and the GOP-controlled Legislature still hopes to wrap up work on the bill next week.
Democratic Gov. Laura Kelly and the state Department of Commerce are pushing for quick passage so that the agency can offer an unnamed company $1 billion or more in incentives to make Kansas home to what department officials say would be a $4 billion facility. Kelly’s office and the department were negotiating with lawmakers.
“It came over here a train wreck,” said House Commerce Committee Chair Sean Tarwater, a Stilwell Republican.
Republican senators added a cut in corporate income taxes, arguing that other businesses, particularly small ones, should also get a break if the state is going to offer huge incentives to single companies. But the provision is written so that the state would keep reducing the tax in future years, possibly until it was eliminated.
Kelly, other Democrats and the Department of Commerce favor one modest cut in the corporate income tax rate. Even some Republicans who favor a series of cuts acknowledge that the disputed provision’s language is unclear enough that the reductions could be more aggressive than intended.
“Whatever we do, we want to be sure it’s sustainable,” said state Rep. Kristey Williams, an Augusta Republican.
The measure would give the Department of Commerce the authority to cut a company’s state income tax burden, cover part of its payroll, reimburse some employee training costs and reduce its local property taxes. It also could offer some breaks to up to five major suppliers named by that firm.
Some GOP conservatives have criticized the measure as crony capitalism that has the state improperly picking economic winners and losers.
Deputy Commerce Secretary Paul Hughes told the House committee this week that Kansas is pursuing “a massive advanced manufacturing facility” that will employ 4,000 people earning an average of $50,000 a year. Officials and lawmakers who know more details say they’ve been required to sign an agreement not to disclose the information publicly.
The bill also would cut the state’s corporate income tax by a half-percentage point once that company begins receiving the incentives, dropping the top rate to 6.5% from 7%. The bill says that the tax will continue to drop by a half-percentage point for each year “that a qualified firm or qualified supplier receives benefits.”
Senate Commerce Committee Chair Renee Erickson, a Wichita Republican, said the goal was to have multiple reductions in the corporate income tax so that Kansas is more competitive with other states. Texas has no corporate income tax; Oklahoma’s top tax rate dropped to 4% this year, and the top rates in Arkansas, Colorado, Missouri and New Mexico are lower than 6%, according to the nonprofit Tax Foundation.
“Taking it down a half-percent one time is not going to get a competitive level,” Erickson said.
The first corporate tax cut is expected to cost the state about $48 million a year in revenue. The state is on track to collect more than $660 million in corporate income taxes during the current budget year.
The big-incentives program has had bipartisan support, but Sen. Tom Holland, a Baldwin City Democrat, said if GOP lawmakers stick to ongoing corporate tax cuts, “I can see a lot of senators running like scalded cats away from that deal.”
Senate President Ty Masterson, an Andover Republican, said the intent was to cut the rate every time the state closed a “mega-deal” with a company, so it would take 14 such deals to phase out the corporate income tax. In both chambers, GOP lawmakers also want to require legislators to review the big-incentives program after a year or two.
In the House, Republicans were leaning toward Masterson’s position that the corporate tax rate would drop only when the Commerce Department lands such a deal.
“Now I’ve got to get conservative Republicans to fix a bill,” Tarwater said.