The Kansas House is moving forward with its own version of increasing the state’s standard income tax deduction as part of a wide-ranging tax bill that’s far less expensive than one passed last month by the Senate.
The House tax committee late Tuesday signed off on a new piece of tax legislation that would cost the state about $375 million over three years compared to the one passed by the Senate that will cost more than $1 billion over the same period.
The House bill contains many of the same provisions of the Senate bill, including a measure allowing Kansans to itemize on their state income tax return if they don’t itemize on their federal return.
It also applies the state sales tax to so-called marketplace facilitators, where companies such as Amazon allow third-party retailers to sell goods and services on their website.
The tax on those businesses would bring in about $158 million over three years, which could help offset the cost of the tax cuts.
House Speaker Ron Ryckman Jr. called his chamber’s version of the bill a responsible way for putting money back into taxpayer’s wallets.
He said the House bill is similar to the one that Democratic Gov. Laura Kelly vetoed back in 2019.
A House committee agreed to providing a $500 across-the-board increase in the standard deduction for all filers.
The bill would increase the standard deduction to $3,500 for single filers, to $8,000 for married couples and to $6,000 for the head of household.
“I think it’s high time we gave everbody in Kansas a little bit of tax break,” said Republican state Rep. Adam Smith, chair of the House tax committee.
“If we put this amendment on, this bill would touch every income taxpayer in Kansas,” he said.
The House proposal for the standard deduction doesn’t go as far as the Senate tax bill.
The Senate agreed to increase the standard deduction for single filers from $3,000 to $3,600 in tax year 2021 and $4,050 in 2022.
The deduction for married filers would increase from $7,500 to $9,000 in 2021 and to $10,125 in 2022.
Increasing the standard deducation in the Senate bill costs about $300 million for three years after it reaches $4,050 for single filers and $10,125 for married filers, according to the Department of Revenue.
The latest data from the Department of Revenue shows that about 1.2 million Kansas taxpayers took the standard deduction in 2019 compared to about 100,000 who itemized on their tax forms.
However, that number has been dropping since the federal government increased the standard deduction to about $12,000 for single filers and about $25,000 for married couples, discouraging taxpayers to itemize.
Kansas law requires anyone who takes the standard deduction on their federal return to take the state standard deduction, which is less lucrative.
The bill also includes an exemption for income earned by foreign affiliates of U.S. companies from intangible assets such as patents, trademarks and copyrights.
The exemption for so-called global intangible low-taxed income is a controversial piece of similar legislation two years ago that Kelly vetoed and Democrats said would benefit multinational companies at the expense of working Kansans.
The federal government started taxing global intangible low-taxed income as a way of ensuring that a minimum level of foreign income tax is paid on the earnings of the foreign subsidiaries of U.S. parent companies.
Supporters of the provision argue that Kansas has not taxed foreign income previously and question why the state should collect the tax now.
Eric Stafford, lobbyist for the Kansas Chamber of Commerce, said the Senate bill became more difficult to pass and get signed into law after the cost ballooned to more than $1 billion.
Stafford said the chamber’s not necesarily against the Senate bill but a $500 million fiscal note in the first year is not realistically going to “stand a chance” of passage.
Stafford said the House version has a more “responsible” fiscal note that is partly offset by internet sales taxes.
“Some of the provisions that were passed in the Senate, it’s not that they’re bad policy, it’s just that for what we’re trying to get done makes it difficult.”
Kansas Action for Children was still “deeply concerned” about the bill passed out of the House committee, fearing that lawmakers still don’t fully understand the cost.
The organization also expressed concern about whether the state can cut taxes given the provisions in the new federal coronavirus relief law.
“Guidance in the American Rescue Plan Act makes it clear that federal aid cannot be used to offset tax changes that reduce revenue,” said Emily Fetsch, director of fiscal policy for Kansas Action for Children.
“The Legislature needs to slow down and wait for guidance from the Treasury Department. Moving forward is irresponsible,” she said in a statement.
Ryckman dismissed any notion that the federal governmen could use the new COVID-19 relief bill to tell the states they couldn’t cut taxes.
“I don’t believe the federal government can tell us we can’t lower taxes,” he said.
Last week, Republican Attorney General Derek Schmidt signed onto a letter warning Treasury Secretary Janet Yellen that language in the new law providing $1.9 trillion in financial relief could keep Kansas and other states from making any change in tax policy that leads to less revenue.
The letter, signed by 21 attorneys general, said provision of the law forbids states from using COVID-19 relief funds to “directly or indirectly offset a reduction in … net tax revenue” resulting from state laws or regulations that reduce tax burdens — whether by cutting rates or by giving rebates, deductions, credits, “or otherwise[.]”
However, Yellen issued a statement disagreeing with that assessment.
“Nothing in the act prevents states from enacting a broad variety of tax cuts,” Yellen said in a statement reported by Reuters.
“It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law,” Yellen said.
