22 Apr 2022 Kansas Capitol Review – Upcoming Veto Session
2022 Legislative Session, First Adjournment Update
The 2022 Kansas legislature will return on Monday, April 25 to begin the Veto Session where it will continue work on unfinished legislation and reconsider bills vetoed by Governor Laura Kelly. Please find, below, an update on bills reviewed by the Governor during the interim, and legislation yet to be completed this year.
Kansas Seed Law
House Bill 2563 was introduced at the request of the Kansas Dept. of Agriculture (KDA) to make comprehensive changes to the Kansas Seed law, including authorizing the agency civil penalty authority over the seed industry. Last fall, Kansas Agribusiness Retailers Association (KARA) worked closely with the agency to amend the proposed language that would appear in the bill. The House Agriculture Committee adopted an amendment requested by KARA to remove language allowing the agency authority to assess a new penalty each day for a continuing violation. The Senate Committee on Agriculture and Natural Resources further amended the bill to reduce the maximum civil penalty from $3,000 to $1,000. Contents of the bill were placed into Conference Committee Report on HB 2559 which was passed by both chambers and signed into law by Governor Kelly.
Governor Kelly has signed House Sub for Senate Bill 267, the budget for state agencies for fiscal years 2022, 2023, and 2024. The bill leaves an ending balance projection of $1.4 billion in fiscal year 2022, and $895 million in fiscal year 2023. A previous Senate version of the budget included a provision requiring use of the federal E-Verify system for all state hiring and contracts of more than $50,000. The final agreed language in the budget bill, however, does not include the E-verify provision. Governor Kelly exercised her line-item veto authority on only two sections of the budget.
This week, state economic forecasters boosted their tax revenue estimates by $760 million over two years, leaving Kansas with a projected ending balance of $3.1 billion for this year and firing up the debate on elimination of the state sales tax on food. The state is anticipated to receive $9.3 billion in taxes for the current fiscal year ending June 30, up from estimates last fall of about $8.9 billion.
Credit and Debit Card Fees
Kansas law prohibits the seller or lessor in any sales or lease transaction or any credit or debit card issuer from imposing a surcharge on a card holder who elects to use a credit or debit card in lieu of payment by cash, check or similar means. A surcharge is defined as any additional amount imposed at the time of the sales or lease transaction by the merchant, seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit or debit card. House Bill 2316 was introduced to eliminate this prohibition and allow the imposition of a surcharge. The Senate Tax Committee placed the contents of HB 2316 into Sub SB 462, but the bill did not advance further this year.
Retailer Tax Credit for Collection of State Sales Tax
Senate Bill 463 would allow retailers to retain 1.5 percent of the retail sales and compensating use tax that they collect each month up to $300. Any retailer that files a consolidated return for reporting retail sales and compensating use tax prior to January 1, 2022, would be subject to the $300 per retailer limitation. The bill would decrease sales tax revenue to the state by an estimated $50 million in fiscal year 2023. The Senate Tax Committee passed the bill out favorably, but the bill did not advance further this year.
Corporate Income Tax Apportionment
Kansas currently uses a three-factor system for apportioning income between states for corporate income tax purposes. House Bill 2186 would allow corporate taxpayers the option to elect which methodology to use when apportioning their corporate income between Kansas and other states in which it operates. The legislation would allow certain taxpayers, based on NAICS codes, to elect to use a single-factor apportionment formula based on sales to determine corporate income tax liability. The House Tax Committee amended the bill to add NAICS codes 541690 and 112210. During a Tax Conference Committee, the House requested to include the contents of HB 2186 in a tax committee report. However, the Senate, which had not held a hearing on the bill, has continued to refuse the request stating the bill’s fiscal cost ($20 m) and that the bill was a policy change that should not be made without a full hearing. Other tax bills will likely be considered during the veto session, and proponents of this bill will continue to seek its passage.
House Concurrent Resolution 5014 proposes an amendment to the Kansas Constitution that would increase legislative oversight of agency regulations. Having been approved by two-thirds of the legislature, the amendment will now go before Kansas voters as a ballot question during the November 2022 election. In addition, House Bill 2087 amends current law by requiring the state budget director to review any proposed agency regulation with an economic impact of $1 million or more over a two-year period. The legislature amended the bill to include the contents of Senate Bill 34, a bill that requires each state agency to review its regulations at least once every five years to determine if they are still necessary. The bill also allows for a 15-day quick repeal process for outdated regulations. The bill was passed by both chambers and signed into law by Governor Kelly.
Unlawful Legal Solicitation
Senate Bill 150 defines and prohibits certain deceptive lawsuit advertising practices and restrict the use or disclosure of protected health information to solicit individuals for legal services. The bill, supported by business and industry, was signed into law by Governor Kelly.
Major Tax Relief Bills
CCR on House Bill 2239 contains myriad provisions concerning income taxes, property taxes, and sales taxes, and was the only bill to be passed by the legislature during the regular session. The bill, which was signed into law by Governor Kelly, contains inter alia the following:
- Short Line Railroad Investment Tax Credit. This provision provides a transferable income tax credit for qualified railroad track maintenance expenditures of short line railroads and associated rail siding owners or lessees. Short line rail investments would qualify for a tax credit of $5,000 per mile of rail, up to 50 percent of the railroad’s annual total income tax bill. Rail siding would qualify for $5,000 per rail project. The tax credit exists from 2022 through 2031.
- Sales Tax Exemption for Delivery Services. This provision excludes separately stated delivery charges from sales and compensating use tax.
- Rural Opportunity Zones (ROZ) Program. This provision extends the sunset on the ROZ student loan repayment program to July 1, 2026, and extends the sunset on the income tax credit to January 1, 2027.
- Property Tax Abatement for Disaster-Destroyed Property. This provision grants county commissions the authority to abate property taxes for all buildings and agricultural improvements listed as real property in situations where such property has been damaged in a gubernatorial-declared disaster, and restoration costs would equal or exceed 50 percent of the pre-damage market value. The bill would be retroactive to tax year 2019, and applications would be permitted until December 20, 2022, for natural disasters occurring in 2019 or 2020.
- Salt (State And Local Tax) Parity Act. This provision allows a S corporation or partnership to annually elect to be subject to income tax at the entity level for the taxable period beginning in tax year 2022. The S corporation or partnership would make the election on the return filed by the S corporation or partnership. The filing of the return would be binding on all electing passthrough entity owners. Find more information Here.
- Research and Development Income Tax Credit. This provision establishes a research and development tax credit from 6.5 percent to 10.0 percent for LLCs and small businesses. Currently, Kansas law provides this tax credit for corporations only, and has a one-time, non-refundable transferability.
- Agricultural Fencing Sales Tax Exemption. This provision allows for a sales tax exemption for purchases to reconstruct, repair or replace fencing used to enclose agricultural land that was damaged or destroyed by wildfire or other natural disaster occurring on or after January 1, 2021. To be eligible for the exemption, the property containing the fence would be required to be located within an area declared to be a disaster by the federal, state, or local government and the purchases would be required to be made within two years of the date of the applicable disaster declaration. For applicable purchases already made, taxpayers would be entitled to a refund of sales tax upon provision of appropriate documentation. In addition, beginning July 1, 2022, the bill exempts from sales tax all sales of tangible personal property and services necessary to construct, reconstruct, repair, or replace any fence used to enclose agricultural land.
In addition, the Tax Conference Committee reached agreement on two other tax bills that will likely be taken up for final action:
- CCR on House Bill 2106 would phase out the state’s 6.5% sales tax on groceries by cutting the tax to 4% by Jan. 1, 2023, 2% in 2024, and then to zero by 2025. The cost of the tax cut to the state is estimated at $80 million in fiscal year 2023, $250 million in 2024, and $400 million in 2025 and each year beyond. The tax cut does not apply to prepared food at restaurants. The phaseout would be paid for by increases in internet sales taxes. While the measure seems to have broad support in the legislature, Republican leadership have voiced concerns about the state’s ability to continue covering this lost revenue.
- CCR on House Bill 2597 would amend various income and sales tax provisions, including a provision to allow a sales tax exemption on utility services; a provision to allow net operating losses to be carried forward; and a provision providing property tax relief for small businesses that were forced to close by the state during the COVID-19 pandemic. The legislature may take this bill up during the veto session.
KDA Agency Fees
House Bill 2560 authorizes the KS Dept. of Agriculture to extend current fees on agribusiness without increasing those fees. The bill also extends, to 2030, the existing water right transition assistance program (WTAP) administered by the agency. The agribusiness industry testified neutral on the bill and explained that fees on agribusiness are currently higher than most neighboring states and the associations would oppose any attempt to increase the fees. The bill was signed into law by Governor Kelly.
House Bill 2703 modifies the My Reemployment Plan Program and, with certain exceptions, make use of the program mandatory for those receiving unemployment insurance benefits. The bill also lowers credit rate schedules for payments made by employers into the Employment Security Fund, which will potentially save employers millions of dollars in payments to the fund. Both chambers passed Conference Committee Report on HB 2703 and the bill was signed into law by Governor Kelly.
Bill Opposing Sanctuary Cities
House Bill 2717 prohibits any Kansas municipality from preventing the enforcement of federal immigration laws, requiring municipal law enforcement agencies to provide written notice to each law enforcement officer of the officer’s duty to cooperate with state and federal agencies in the enforcement of immigration laws and requiring any municipal identification card to state on its face that it is not valid for state identification. The bill was signed into law by Governor Kelly.
State Level Preemption of Plastic Regulation
Senate Bill 493 would prohibit cities and counties from regulating plastic and other containers designed for the consumption, transportation or protection of merchandise, food, or beverages. The bill was passed by both chambers but then was vetoed by Governor Kelly.
Senate Bill 546 would allow for the use and regulation of autonomous (driverless) motor vehicles in Kansas. Walmart and an autonomous vehicle developer testified in support of the bill which would allow self-driving vehicles to traverse fixed business-to-business routes. The bill would also preempt cities or counties from prohibiting the vehicles. Forty-four states have created a framework for regulating autonomous vehicles, but Kansas, Missouri and Oklahoma are among six states without such laws. The bill would create a statewide policy for the regulation of autonomous vehicles and would restrict use of automated vehicles to movement between fixed points along repeatable routes. The Senate passed the bill on a vote of 24-12. The Transportation Conference Committee may continue discussions on the bill during the veto session.
Motor Carrier Independent Contractor Status
Senate Bill 494 would prohibit altering the employment status of a driver of a motor carrier (as an independent motor carrier) for requiring safety improvements on a vehicle. The Transportation Conference Committee may continue discussions on the bill during the veto session.
Ag Pipelines in County Right of Way
House Bill 2531 would permit, upon approval of the county commission, any person engaged in an agriculture activity to construct and operate pipelines in pursuit of an agricultural activity along a right-of-way of any county or township road in conformity with the laws and regulations of the State of Kansas and the county in which the pipeline is located. The bill would authorize all prior-permitted pipelines in county rights of way. The House Committee on Agriculture amended the bill to require the owner of the pipeline to remove the pipeline, or contract directly with the landowner, if the county or township closes the road and vacates its right of way. The amendment also authorizes a board of county commissioners to require the owner of a pipeline to place a bond or liability insurance to cover the costs of any pipeline removal upon abandonment. The bill did not advance and is likely dead for the year.
Student Work-Based Learning Program Liability
House Sub for SB 91 was introduced with the purpose of providing businesses with immunity from general liability for participating in work-based learning programs with students. Under the bill, schools will be able to insure against this liability in the same way that they insure students during field trips and sporting events. This reasonable legislation is beneficial for businesses as they seek to increase the Kansas workforce. Both chambers passed Conference Committee Report on SB 91 and the bill was signed into law by Governor Kelly.
Career Technical Education Credential and Transition Incentive
House Bill 2631 would enact the Career Technical Education (CTE) Credential and Transition Incentive (CTI) for Employment Success Act. The bill would provide a new category of state aid to school districts for students obtaining a CTE credential. In addition, a school district that offers CTE and has students that obtain a CTE credential would receive state aid payments subject to the availability of appropriations. The Education Committee amended the bill this week to: Specify reimbursement rates for approved standard CTE credentials and approved high-value CTE credentials; provide reimbursement for assessments for standard CTE credentials exclusively for students with an IEP, 504 plan, or as identified by the discretion of the school district. The House passed the bill on a vote of 122-0. The Education Conference Committee may continue discussions on the bill during the veto session.
Workforce Development Scholarship
Last year, Governor Kelly signed into law a workforce development bill creating the Kansas Promise Scholarship Act which provides educational scholarships to students attending a Kansas community college, technical college, or two-year associate degree program or career and technical education programs. The scholarship would be eligible for students pursing certain fields of study, including manufacturing, construction, and others. This year, Senate Bill 340 was introduced to authorize additional programs and fields of study. The Education Conference Committee may continue discussions during the veto session.
Certain factions within the Legislature are eager to see recreational and medicinal use of marijuana be legalized in the state and various bills were introduced this year for that purpose. Marijuana is now a Schedule 1 Controlled Substance under federal law, which makes illegal the interstate transportation of most forms of medical marijuana. The Senate Federal and State Affairs Committee deliberated on SB 560, a bill regulating medical marijuana, and on House Sub for SB 158, a bill that would have created the Kansas Medical Marijuana Regulation Act. The committee heard testimony on the economic development prospects of getting a Kansas medical marijuana industry established to make the state competitive if federal restrictions were eliminated. Opponents to the measures argue that this is only the first step toward state legalization of recreational marijuana, as has happened in Colorado and 18 other states. The legislation did not move forward this year.
KEMA Disaster Emergency Powers
Senate Bill 541 would, inter alia, limit the authority of the governor, and other governmental entities in issuing and enforcing orders for face mask mandates, gathering limitations, and business restrictions related to a contagious or infectious disease. The bill would also prohibit post-secondary educational institutions, the State Board of Education, local boards, schools, and school officials from requiring a COVID-19 vaccination and from issuing or requiring a COVID-19 passport. Schools would be required to recognize exemptions for mask requirements and alternative measures regarding religious exemptions for vaccinations. The bill would also give local boards of education and governing bodies of community and technical colleges the authority to issue orders or policies for contagious or infectious diseases instead of the current authority given during the state of disaster emergency related to the COVID-19 health emergency. SB 541 would also remove the sunset for the Contact Tracing Privacy Act. The bill would prohibit schools and childcare facilities from denying access to their facilities unless there were reasonable grounds that a person was infected with a disease suspected of being infectious or contagious. The Senate passed the bill favorably on a vote of 24-14. The bill was then referred to the House Committee on Judiciary but received no further action. The contents of the bill may be considered in conference during the veto session.
Government Response to COVID Pandemic
CCR on Senate Bill 286 would amend and extend the expiration dates and effectiveness of provisions regarding the governmental response to the COVID-19 pandemic; amend certain healthcare provider immunity provisions related to the COVID-19 public health emergency; create the crime of interference with the conduct of a hospital; and increase the penalty for the crime of battery when committed against a healthcare provider. After passage in both chambers, the bill was vetoed by Governor Kelly.