House, Senate negotiators seeking income, sales and property tax bills capable of dodging vetoes

by Tim Carpenter, Kansas Reflector
April 3, 2024

TOPEKA — Four Republican and two Democratic negotiators representing the House and Senate engaged Tuesday in opening rounds of conversation about using the state’s large revenue surplus to draft legislation delivering property, income and sales tax relief that won’t run into a veto buzz saw in the hands of Gov. Laura Kelly.

Rep. Adam Smith and Sen. Caryn Tyson, Republicans from opposite ends of the state and chairs of their respective tax committees, led this microcosm of the Legislature through explanations of the House’s unanimously passed tax package in Senate Bill 300 and the more costly and controversial Senate Bill 539 approved mostly on partisan lines in the Senate.

The conference committee also examined four dozen tax provisions that were debated but not adopted into state law in the 2023 and 2024 sessions. The lawmakers were scheduled to return to the negotiating table Wednesday.

“It’s always good to get all the cards out in front of us on the table here and know what we have to work with,” Smith said. “I think one thing this shows is we’re not that far apart on a lot of these things.”

The current plan, Smith said, was to produce one major tax overhaul bill and supplement that with three or four bills containing less-substantive tax changes. Tyson and Smith indicated there was interest in avoiding criticism resulting from the bundling of more than a dozen tax bills into a mega-bill that forced legislators to swallow offensive policy in order to gain passage of reform they viewed as essential.

In this legislative session, legislators are working with a projected $4 billion revenue surplus that created an unusual opportunity to offer constituents $300 million to $600 million annually in income, sales and property tax relief.

Everyone from Democratic Gov. Laura Kelly down to the most inexperienced House member want to deliver on tax cuts before the Legislature adjourns. The trick is landing on a strategy that secured the simple majority of votes for passage — 63 in the House, 21 in the Senate and one on the second floor of the Capitol. It’s the old 63, 21 and one combination, with the governor at the top of the pile with a veto pen. If she were to reject a tax bill, it would take a two-thirds majority, or 84 in the House and 27 in the Senate, for an override.

There is added pressure on the Legislature given that all 125 seats in the House and all 40 in the Senate will be up for grabs in August and November. Kelly, who was elected to a second term in 2022, won’t be on those ballots.

‘Sustainable tax relief’

In January, Kelly vetoed House Bill 2284 that included the single-rate income tax bill sought by Republican leaders and carried a three-year price tag of about $1.5 billion. The governor said the flat income tax “would overwhelmingly benefit the super wealthy, and I’m not going to put our public schools, roads and stable economy at risk just to give a break to those at the very top.”

Kelly proposed, in concert with Republican and Democratic legislators, a $1 billion tax cut over three years that wouldn’t carve so aggressively into the state treasury.

“It’s time to enact meaningful, sustainable tax relief that benefits Kansans in every corner of our state,” Kelly said as House and Senate negotiators embarked on the latest round of tax negotiations. “My bipartisan plan would reduce costs for homeowners, seniors and working families. Let’s give Kansans a tax cut across the board.”

On March 27, the House voted 123-0 for a comprehensive tax bill with income, sales and property tax benefits that would cost an estimated $1.57 billion over the upcoming three years. It would end the income tax on the lowest earners and set the top rate at 5.6%. The latest Senate offering approved March 14, which was placed in Senate Bill 539, would cost the state perhaps $1.77 billion over three years. On the income tax, the Senate would create a single rate of 5.7%, but steadily drop the rate to 5.45% in five years.

Both bills would eliminate the state income tax on Social Security benefits — at a cost of $120 million to $152 million annually. Both bills would cut the state tax on financial institutions. Both would accelerate repeal of the 2% state sales tax on groceries to July 1, rather than wait for current law to end that tax Jan. 1. The cost of early repeal would cut state revenue by $63 million.

In terms of state income tax, the Senate sought to move ahead with a single-rate approach. The House would enact a two-rate structure. Clear difference over a three-year period: The House bill would cost the state $570 million, while the Senate bill would cost $865 million. The Senate bill would authorize a $46 million to $59 million child tax credit. The House opted for a $170 million reduction in residential property taxes, which would be twice as generous as the Senate.

Moving chess pieces

During two meetings of the tax conference committee Tuesday, the six negotiators dodged the most contentious issue — the flat tax. They instead concentrated on contents of orphaned tax bills developed in the last and current legislative sessions. Those ranged from the sales tax exemption for Johnson County Christmas Bureau, a $1.7 million sales tax exemption for custom meat processing services, the $2.8 million property tax break for owners of ATVs, $10.4 million in tax benefits in support of pregnancy support centers, a $35 million sales tax exemption for military veterans and a $56 million property tax refund for elderly homeowners.

Tyson, who comes former Gov. Sam Brownback’s hometown of Parker, said the conference committee should consider provisions of Senate Bill 8 that was vetoed by Kelly in May 2023.

The senator’s wish list included a property tax exemption for privately owned fitness clubs, restaurants and child care businesses in “competition” with programs operated by the state, city, county, township, university, school district or community college. In Tyson’s opinion, businesses shouldn’t pay property taxes that could be used for government operations intruding on the free market.

“We would ask that you consider the government competition piece,” Tyson said, but Smith made no promises.

Tyson said she would prefer to bundle the $10.4 million in tax breaks for anti-abortion resource centers with $8 million in adoption tax credits and $300,000 to $600,000 to support adoption savings accounts.

“I’d like to keep all those in a ‘life’ bill,” she said.

The Legislature is scheduled to adjourn Friday for a three-week holiday ending April 29. At that point, House and Senate members would know what, if any, legislation was vetoed by Kelly and what they might consider overriding in a brief wrap-up session.

Kansas Reflector is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and Twitter.