Kelly backs alternative tax bill ahead of Senate debate

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Gov. Laura Kelly on Tuesday signaled her opposition to a new tax bill the Senate will debate later Tuesday, instead revealing an alternative that would apply sales taxes to some online transactions coupled with tax relief by increasing the standard deduction.

She called the Senate bill “irresponsible”  and “bad tax policy,” saying it was unfathomable the Legislature would push a large a tax measure when the state is still salving its wounds from the economic damage caused by the COVID-19 pandemic.

“It is unthinkable that legislative leadership during a health and economic crisis – the likes of which we haven’t seen for a 100 years when we are trying to steer Kansas to recovery from the pandemic – that they would even consider such action,” Kelly said.

The Senate bill would give up about $422 million in revenue, partly from allowing Kansans to itemize on their state tax return if they don’t itemize on their federal form and foregoing income earned by foreign affiliates of U.S. companies from intangible assets such as patents, trademarks and copyrights.

“The bottom line is this bill does very little for regular, hardworking Kansans and it does a lot for giant multinational corporations,” said Senate Minority Leader Dinah Sykes.

“At a time when we’re facing huge unemployment rates in an unsteady economy, we do not need tax cuts for the rich, which have no impact on unemployment,” she said.

Kelly said the Senate bill was a reflection of the tax policies enacted when Sam Brownback was governor almost 10 years ago. She said the proposal she is backing would be neutral to the budget.

“This is good tax policy. What is being presented in Senate Bill 22 is bad tax policy,” she said. “Kansas has suffered because of bad tax policy. I don’t think Kansans want to go back there.”

Kelly is proposing to levy a sales tax on so-called marketplace facilitators, where companies such as Amazon allow third-party retailers to sell goods and services on their website. Only three states do not tax marketplace facilitators.

The marketplace facilitator tax would bring in about $51.5 million for fiscal year 2022.

The governor also backs a sales tax on digital products such music downloads, movies, books and apps – something critics have dubbed the “Baby Yoda” tax, a reference to the creature  from the “The Mandalorian” series on Disney+.

The tax on digital goods would generate about $50.9 million for the budget in 2022.

Twenty-nine of the 45 states that collect a retail sales tax charge sales taxes on digital goods. Missouri and Oklahoma do not tax digital products.

Senate Democrats plan to add the taxes – coupled with an increase in the standardized deducation – as an amendement to the tax bill on the floor later Tuesday.

The governor’s proposal would 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 the 2021 and to $10,125 in 2022.

Kelly said the latest proposal provides an even playing field with brick-and-mortar retailers and provides more tax relief for Kansans.

“Our plan is about fairness,” Kelly said. “It’s about ensuring that our Kansas Main Street busineses can compete with out-of-state retailers.

“It’s about giving tax relief to the hardworking Kansans who need it most and it’s about supporting our COVID-19 economic recoverty efforts,” she said.

“All of that while maintaining a fiscally responsible budget and continuing to fund the services that Kansans value,” she said. “It’s really a no brainer.”

Senate President Ty Masterson said he thought there were some good ideas in what the governor was proposing, namely increasing the standard deduction.

“I’m not a big fan of tax increases,”  he said. “That’s a fair assessment.”