2008 Legislative Wrap-up Report
Legislature Approves Phased-In Reduction in Corporate Income Tax
One of the last actions of the Kansas Legislature was a package of tax measures, some of which impact business. In tax year 2008, the top corporate income tax rate will reduce from 7.35% to 7.1%. In tax year 2009, the top corporate rate will reduce to 7.05%. Then in tax year 2011, the tax rate will be reduced to 7%.
In order to make these changes revenue neutral for the state, two other provisions were included in the bill. A prohibition on income churning; this is a new income tax provisions clarifying the definition of gross receipts to prevent the inflation of the denominator of the sales factor in the apportionment formula by inclusion of certain extraordinary items. Secondly, there is a change in apportionment of business income to include use of the functional test in addition to the current transactional test when determining business income of multi-state and multi-national corporations. Kansas is the last state using only the functional test. The Greater Topeka Chamber of Commerce supported Senate Sub. for HB 2434. The bill, which includes additional tax provisions, was supported by all but two of the Shawnee County Delegation.
Maintaining and Growing the Capitol Complex in Downtown Topeka
During the Veto Session the Topeka Chamber became involved in an issue of keeping state operations in downtown Topeka. Downtown Topeka Inc. had been informed that one of the state offices planned to move from the downtown area, spending significant funds to update an old state facility.
With the strong urging of Topeka Senators the funds for the office move were removed in the Omnibus budget. The Topeka Chamber provided support for this action with the Conference Committee, legislative leadership, and the Governor’s office; the move will not happen as per language in Senate Sub for HB 2946, the Omnibus bill.
Improving Business Incentives – Changes to the IMPACT Program
A state business incentive used to attract major business projects to Kansas is the Investments in Major Projects and Comprehensive Training (IMPACT) program. Early in the session the Kansas Dept of Commerce, the state chamber and several local chambers, including the Topeka Chamber lobbied for major changes to this incentive program. The program currently utilizes a bonding program to fund the incentive program with the bonds paid off with 2% of the state’s collection of withholding funds. The incentive has never been utilized to its fullest and limits were imposed on the amount of incentive that could be provided to a major development.
Changes sought were to alter the program to a cash basis rather than bonds, remove the limits to providing the incentive and designate a portion of the funds for small business development and rural business development. As the state’s future fiscal status was calculated later in the session the outlook for changes to the program were diminished. Senate changes made to the bill removed the 95% limits and added language to set aside some of the incentive for small business and rural areas, but provisions to convert the program to a cash incentive were removed. Although not as dynamic as was first presented, the Topeka Chamber supported these changes to IMPACT. Late in the session the provisions of this bill were added to the Economic Stimulus Package which was vetoed by the Governor. Efforts will resume in 2009 to improve the IMPACT incentive program.
Improving Business Incentives – Single Factor Apportionment Formula
In the 2007 legislative session, the Topeka Chamber was intricately involved in seeking a change in tax policy regarding the use of the single factor apportionment option for manufactures that build new $100 million facilities and employ at least 100 high-paying jobs. During this session the Topeka Chamber requested legislation to extend the sunset date of last year’s bill from 12/31/2009 to 12/31/2014. Topeka senators successfully had a bill drafted and it passed the Senate 39/1. Action was not taken in the House during the regular session to pass a tax bill where the provisions of the Senate passed bill were included. Legislative leaders decided to package this proposal with others in order to assist in the passage of the coal-fired energy bill.
Consequently, during the Veto Session, the provisions of the single factor bill, the IMPACT language as outlined above, a phased in telecommunications sales tax reduction and a bill to provide state backed bonds for road improvement projects at the Gardner Intermodal facility were added to the coal-fired energy bills and packaged as the 2008 Economic Stimulus Package, Senate Sub for HB 2412. The Governor vetoed the package; the Speaker of the House announced that there would not be an override attempt because several legislators were not able to return to the capitol to cast a vote. However there was an attempt to concur with legislation passed by the Senate dealing only with the single factor apportionment language. A procedural motion was made to suspend the rules and allow for a vote on the bill; the procedural motion failed 47/48. All House members of the delegation voted for the motion. The Shawnee County Delegation made every attempt to advance this legislation in a very difficult legislative session. Efforts will resume in 2009 to provide the option of using the single factor formula.
Immigration
Immigration was one of the most contentious issues the legislature attempted to deal with this year. The Topeka Chamber participated in a coalition of 37 business and ag organizations to communicate and provide alternatives to detrimental legislation was otherwise developed and debated. Bills were introduced to mandate businesses use the voluntary national e-verify system that is set to expire the end of this year and has numerous internal issues that would be challenging for businesses. More importantly some bills included provisions that would suspend or remove business licenses, permits and/or any state issued business document allowing a business to operate, even when an undocumented employee was accidently hired.
A compromise bill, Sub for SB 458, was developed; it was acceptable to business/ag interests as a fair and reasonable approach. The bill passed 40/0 in the Senate however there were not enough votes in the House to procedurally bring the bill to the floor for a vote in the House. Therefore no immigration bill was approved this session. This lack of action is positive in light of the possibility of passage of any of the very onerous bills proposed earlier in the session. The immigration issue will likely surface again next year unless there is action by Congress to address the situation at the national level where it makes the most sense.
Small Business Regulatory Fairness
The Small Business Regulatory Act was approved; it was enacted to assist small businesses deal with the growing costs of state regulations. This bill, SB 579, requires state agencies to consider the impact of proposed state rules and regulations on small business (50 or fewer employees). The chamber supported bill passed without any opposition in both the House and Senate.
Workers Compensation
Last year the Kansas Supreme Court issued their interpretation of the calculation of workplace injuries; this was the CASCO decision. There was an attempt by legislators sympathetic to personal injury trial attorneys to pass legislation to change the Supreme Court’s ruling. That legislation was not approved; with the leadership of the Kansas Chamber, local chambers across the state opposed such legislation.
Reduction in Local Sales Tax Revenues
There were efforts during the session to eliminate state sales taxes paid in renovating the capitol building. If these efforts would have been successful city, county and Washburn University revenues would have been reduced. Additionally state renovations on the capitol would have been treated differently than renovations on state buildings throughout the state. The Senate members of the delegation along with the city of Topeka worked diligently to derail this policy; the chamber provided assistance; legislation was not approved.
Health Care/Insurance Reform
Although intended to be a big topic this session, other issues took legislative attention. A bill was approved that allows the extension of COBRA from six to eighteen months. Secondly, insurance companies that offer group health insurance will be required to provide the option of establishing a premium only cafeteria plan for businesses. Although there were ten health insurance mandates proposed, none were approved. The Kansas Chamber led the efforts representing business in these discussions.
Tourism
Legislation was introduced to enhance tourism efforts throughout the state. A PricewaterhouseCoopers analysis of Kansas tourism indicated that attracting people willing to spend money on tourism/leisure activities in Kansas will result in a $200 million economic value. Tourism generates economic gain within states that have quality sites and activities that are aggressively promoted. Currently Kansas’ tourism budget is 44th in the nation and 50% less than other states in the Heartland. The Kansas Tourism Initiative bill as introduced dedicated a portion of the new revenues from the new state casinos, a portion of sales tax generated from tourism activities, and tax credits for tourism spending to tourism generation activities. The funding would be used for marketing and product enhancement. The bill also removed the governance of the Tourism Department from the Kansas Department of Tourism by setting up an independent board similar to the Kansas Bioscience Authority Board.
As the bill progressed through the legislative process some provisions were removed; the funding additions would only be generated from the sales taxes generated from tourism-related industries to supplement current funds now appropriated. The separate governance remained in the bill approved by the Senate, but the bill did not reach the House floor for a vote. The Topeka Chamber supported enhancing funds for tourism marketing and improvements, but did not have a position on the governing issue.
Other Legislation
SB 497, developed by the Dept of Commerce, proposed changes in investment and tax credit incentives to allow a portion of the tax credits to by given as cash was not approved. The Topeka Chamber along with other local chambers and the state chamber supported the legislation.
A consolidation bill, SB 454, would have allowed cities and counties to adopt a consolidation plan or a plan could be created through citizen petitions. The bill passed the Senate with the support of the three Topeka/Shawnee County Senators but was never voted on in the House.
An important research and development machinery and equipment sales tax exemption in SB 530 and HB 2739 was not approved by the legislature. This tax treatment would be similar to the sales tax exemption utilized by manufacturers. With the determination that state revenues would not meet expectations, this legislation was left for future legislators to deal with. The chamber supported this legislation.
There were many other bills that were harmful or beneficial to the Topeka business community. The chamber examined, followed, and communicated when necessary.
The 2008 Kansas Legislative Session was one with vast issues that dominated the discussions. Your chamber worked with the Shawnee County Legislative Delegation to promote positive legislation for the Topeka/Shawnee County business community. This was not a typical session; several large issues were not resolved. Members of the delegation worked diligently on the behalf of this community and with their help some good legislation was passed and some bad legislation was killed. Although not always in agreement, the thirteen legislators, representing this community, join together time and again to pass important legislation for Topeka/Shawnee County. On other issues they voice their views and strive to make decisions in the best interests of their many constituencies. Our thanks and appreciation to their dedication and tenacity in working to make our community the best it can be.
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