A SECOND OPINION, The Kansas Policy Institute
With just a few days left in the 2018 legislative session, Kansans will be hit with yet another tax increase unless the Legislature takes action to prevent it. The Department of Revenue says the state will get a $506 million windfall over the next three years as a result of changes in federal tax law. The extra state income tax largely comes from deduction limits on things like mortgage interest and a variety of business tax changes. An increase in the federal standard deduction is also expected to prevent some taxpayers from qualifying to itemize.
The Senate passed legislation by a vote of 24-16 that would prevent the tax increase but legislators in the House declined to approve it as written and set up a conference to attempt a compromise.
The Supplemental Note on Senate Substitute for HB 2228 outlines changes approved by the Senate:
Allow Kansans to itemize for state income tax purposes regardless of whether they did so for federal purposes
Allow full deductibility for medical expenses, mortgage interest and property taxes for state income tax purposes beginning this year. Current law only allows 50 percent deduction this year.
The standard deduction for single filers would increase from $3,000 to $3,750; head of household would increase from $5,500 to $6,875 and the married deduction would increase from $7,500 to $9,375.
Full expensing of certain tangible property and computer software would be reinstated retroactive to tax year 2017 for small businesses whose income is reported on individual tax returns.
20 percent of repatriated deferred foreign income would be subject to state income tax.
Income tax credits would be provided for contributions to the Eisenhower Foundation under certain circumstances.
Income tax credits would be allowed for tax years 2018 to 2022 equal to 15 percent of goods and services purchased from qualified non-profit vendors with at least 30 percent of their employees being Kansas residents with disabilities.
An income tax exemption available for tax years 2012-2020 under certain circumstances for taxpayers who have established residence in Crawford or Cowley counties when such taxpayers had been domiciled outside the state for at least five previous years and had Kansas source income of less than $10,000 per year.
It’s believed that the House Tax Committee agrees with the repatriation proposal and allowing full deductibility for medical expenses, mortgage interest and property taxes but disposition of the other elements may be in jeopardy. House members’ stronger desire to increase spending is a major motivation for disallowing some of the Senate’s pro-taxpayer changes, and may also prompt House negotiators to push for an onerous online sales tax increase. House and Senate negotiators on the conference committee are also being asked to consider changes on treatment of carried-forward interest, taxation of government subsidies received by businesses and reinstating deductibility of FDIC premiums.
May 4 is the final day of the 2018 legislative session so Kansans will get a $506 million tax increase over the next three years (as calculated by the Department of Revenue) unless the House and Senate Tax Committee negotiators reach a deal that passes both chambers this week.