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Kansas plan to lure big project hits snag on corporate tax cuts

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Stephen Koranda
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KPR

Kansas could phase out its corporate income tax under a measure that also would expand its incentives for attracting new businesses, a move that concerns some lawmakers.

TOPEKA — 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 is expected to vote Thursday on a bill authorizing hundreds of millions of dollars in incentives for billion-dollar business projects after the Senate approved the measure last week. The Republican-controlled Legislature hopes to wrap up work on the bill Monday so that the state Department of Commerce 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.

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 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.

“That’s the confusion,” Senate President Ty Masterson, an Andover Republican, said Wednesday. “I think we’re going to clarify that.”

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 major suppliers named by that firm.

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.

“Taking it down a half-percent one time is not going to get a competitive level,” she said.

The first corporate tax cut is expected 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 2022 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.”

Even some conservative House Republicans oppose ongoing cuts.

“It’s fiscally irresponsible, and so we’ll have to address it,” said House Commerce Committee Chair Sean Tarwater, a Stilwell Republican.

Masterson said the intent was to cut the corporate income tax rate every time the state closed a “mega-deal” with a company, so that it would take 14 such deals to phase out the corporate income tax. The Senate's version of the bill would require lawmakers to take another look at the big-incentives program next year.

“We’re on the phones now, trying to make sure that we have some understandings with each other,” Masterson said.