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Lawmaker Pushing To Restore Business Tax Gives Up The Fight

Jim McClean

The legislator leading a faction of Kansas House members pushing to reinstate taxes on business owners exempted by the 2012 tax cut law has given up the battle--for now, at least.

Rep. Mark Hutton, a conservative Republican businessman from Wichita, said Wednesday that a veto threat from Gov. Sam Brownback and other factors meant that continuing the fight would make it more likely that lawmakers would go home without balancing the budget, forcing Brownback to make across-the-board spending cuts to erase a projected deficit of roughly $400 million.

“We’ve kind of hit a tipping point where if we keep pursuing this we’re going to hurt the people of Kansas, the very people that we were working hard to get some equity to and some parity for on the tax policy,” Hutton said.

Even though Hutton is one of the more than 330,000 business owners who benefited from the tax exemptions approved in 2012, he doesn’t think the policy is fair.

“It’s an equity issue,” Hutton said last week as negotiations on the tax package were beginning. “I don’t believe we can ask the people of Kansas to step up and pay higher sales taxes while we continue to allow some businesses to pay nothing.”

Still, Hutton said, several days of intense negotiations but little progress convinced him that continuing the fight would have been counterproductive.

“There has been over the last two days — actually almost three days — incredibly intense negotiations with a lot of different people and groups,” he said. “And unfortunately some of those didn’t pan out very well. But the process allowed us to come back and say, ‘This is the best we can do right now.'”

The latest tax proposal, which appeared headed for defeat when the House broke shortly after midnight, restores taxes on a kind of business income called “guaranteed payments.” But a simple accounting change may allow many of those subject to the tax to avoid it.

The proposal would generate an estimated $408 million mainly by increasing the statewide sales tax to 6.55 percent from the current 6.15 percent, but would lower the tax on food to 4.95 percent on July 1, 2016. It would also eliminate itemized deductions and raise the cigarette tax by 50 cents a pack, taking it from 79 cents to $1.29, a much smaller increase than public health advocates said was needed to lower smoking rates in the state.

Heading into Wednesday night's debate, Hutton said he would vote for the bill.

“I can hold my nose and a couple of other things and support this bill,” he said, adding that he would encourage the approximately 25 House members who were working with him to do the same.

Despite Hutton's efforts and lobbying by Brownback, the bill was trailing 86-29 when the House broke for the night. The measure failed Thursday 94-21.

Rep. Tom Sawyer, the ranking Democrat on the House tax committee, said it was unfair to buy down the income tax with higher sales taxes.

"This bill raises $470 million in taxes while we leave 338,000 business owners, including myself, paying no income tax," Sawyer said. "That's extremely unfair."

Sawyer said Kansas already has the highest sales tax rates in the region.

"And we want to go ahead and raise it even more," he said.

McClean is executive editor of KHI News Service in Topeka.