Legislators returned to Topeka on Wednesday after adjourning for a short Turnaround break on Thursday, February 22. With pro forma on Friday, the two-day week was a slow start to the second half of the 2018 Legislative Session. Aside from two tax hearings, a few budget subcommittee report-outs in Appropriations, and two information technology bills debated on the House floor, the Legislature conducted no vital business last week.
The Kansas Department of Revenue did announce on Thursday, however, that tax revenues were up again in February by $24.2 million more than what was expected. Of that, $13.3 million came from individual income tax and $7.5 million from sales tax receipts. Fiscal year-to-date, Kansas has seen $270.3 million more than what was budgeted, mostly from last year’s massive, retroactive to January 1, income tax increase bill.
News like this is always positive, but more so in a year when Legislators are called to find $600 million more in the budget to allocate toward K-12 education. As the second half of the session begins, it’s still unclear which direction the Legislature will take to address school funding. With the Kansas Supreme Court’s April 30 deadline, expect to see budget and education issues take center stage in Topeka over the coming months.
Dark Store Theory
The Senate Tax committee heard testimony from prominent Johnson County attorney, Linda Terrill, who specializes in property tax appeals for large, commercial businesses. Terrill discussed methodologies utilized by county appraisers who value commercial properties based on the gross revenues of the occupant, as opposed to the fair market value of the building.
In fee simple valuation, just the real assets of the property are considered and not the gross revenues of the tenant. These businesses are being referred to by county appraisers as “dark stores” – or property as if it were sitting vacant for sale – and the terminology is being used against owners during their property tax appeals.
Terrill stated in her testimony that the “dark store theory is about as real as the tooth fairy.” The Kansas constitution requires uniform and equal property treatment for ad valorem taxes, thus should not be valued based on intangible business value and how well a property owner uses the assets to generate revenue.
The “dark store theory” issue is stirring across the state, but more specifically in Johnson County. Last week’s hearing is just one of several informational hearings being held at the request of Senate Tax committee chairwoman Senator Caryn Tyson (R-Parker), regarding property taxes and how they’re being assessed statewide. Discussions continue into next week and potentially further as lawmakers look at property taxes as a potential source for additional income for schools. With both income and sales tax significantly raised in recent years, property tax is the last of the three-legged stool of state revenues.
Internet Sales Tax
The House Tax committee held a hearing on House Bill 2756 on Thursday, which would create the Main Street Parity Act and require out-of-state internet retailers to collect and remit Kansas retail sales and compensating use tax when selling to Kansas customers. It would apply to retailers with at least 100 transactions and at least $50,000 in gross sales annually. Effective January 1, 2019, the bill is estimated to generate $93 million in fiscal year 2019, with up to $170 million in combined state and local sales taxes. The U.S. Supreme Court is scheduled to hear a case from South Dakota in April regarding internet sales tax law; and the outcome will determine the ability of Kansas to adopt and enforce such legislation.
Proponents of the bill included the Kansas Chamber, League of Kansas Municipalities, Kansas Association of Counties and other local chambers and economic development organizations. The Kansas City, Kansas Chamber of Commerce testified in opposition, asking for an origin-based model due to the complexity of remitting sales tax in 50 separate taxing jurisdictions. Many are asking the Legislature to tread slowly until after the Court rules on the South Dakota case, so we don’t expect action on the bill quite yet.
On Thursday, Representative J.R. Claeys (R-Salina) and chairman of the Transportation and Public Safety Budget subcommittee proposed to the full Appropriations spending $102 million from the State General Fund (SGF) in fiscal year 2019 to complete the 23 delayed TWORKS projects. Claeys reported that it was a unanimous vote of the subcommittee to make this recommendation and stop the decade-long sweeps from the State Highway Fund to pay for priorities having nothing to do with transportation. Last year, the Legislature gave authority to the Kansas Department of Transportation to bond an additional $400 million toward preservation and maintenance of roads and bridges. To date, the agency has bonded $200 million.
A few legislators voiced concern with earmarking a large amount from the SGF before knowing what will be needed for schools and suggested waiting until Omnibus – the final, catch-all budget bill of the session – before taking action. The committee recessed discussions and will continue them on Monday.
Slow last week, busy this week…
Mill Levy Increase
House Bill 2740 will be given two days of hearings in the House Tax committee on Tuesday and Wednesday. This controversial bill raises the statewide mill levy (currently at 20 mills) to 26.76 in the 2018-2019 school year, 32.82 the following year, and 38.43 in 2020-2021. It’s expected to raise the $600 million needed to comply with the Kansas Supreme Court’s ruling that schools are constitutionally underfunded. KARA is testifying in strong opposition to the bill, as property taxes are already too high and burdensome on agribusiness.
House Bill 2511 will be heard in the Senate Transportation committee on Tuesday. The bill extends the renewal period on commercial driver’s licenses from four years to five. KARA is testifying in support. This non-controversial bill passed the House 118-0 before Turnaround.
House Bill 2701 will be heard in the Senate Commerce committee on Friday. The bill establishes a statewide broadband taskforce to evaluate the need, identify funding, remove barriers, and prioritize expansion of broadband infrastructure and services to underserved areas of the state. A report is due to the Legislature by January 31, 2019. This non-controversial bill passed the House 117-0 before Turnaround.
Animal Conversion Units
Senate Bill 405 will be heard in the House Agriculture committee on Tuesday and possibly worked later in the week. The bill clarifies animal conversion units for poultry facilities with dry manure systems, which is currently not addressed in statute. KARA, via the Kansas Agricultural Alliance, will testify in support. It passed the Senate 29-10 before Turnaround and is expected to see more opposition and potential amendments on the House side.
State Parks/Facility Set-offs
Senate Bill 331 is being heard in the House Agriculture committee on Wednesday and possibly worked later in the week. The bill designates two more state parks across a seven-county region. Agricultural processing facilities would be affected by set-off distances required by Kansas law for state parks. The Kansas Department of Wildlife, Parks and Tourism has agreed in private conversations to amend the bill on the House side and define these areas as “linear trails” rather than state parks, thus the set-off requirement would not apply. The bill passed the Senate 26-14 before Turnaround.
Mobile STEM Lab
The Senate Education committee will receive an update and hands-on experience with the Future Maker’s mobile STEM Learning Lab on Tuesday. Wichita Area Technical College partnered with Goodwill Industries, Spirit AeroSystems, Westar Energy, Koch Industries, and the Kansas Department of Commerce last year to create a 34-foot mobile trailer designed to use technology to expose more people to in-demand careers related to science, technology, engineering and math.
NAFTA Governor Call:
KARA, along with other agricultural and manufacturing stakeholders, will be participating in a conference call with Governor Colyer on Thursday regarding a letter he’s been asked to send to Washington on behalf of Kansas in support of NAFTA and its importance to the state’s economy.
A number of budget subcommittees will be giving their agency report-outs and recommendations to their respective House Appropriations or Senate Ways and Means committees next week:
· Kansas Department of Agriculture
· Kansas Department of Health and Environment
· Kansas Department of Commerce
· Kansas Board of Veterinary Examiners
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