14 Feb 2022 Kansas Statehouse Insider – Week 05
2022 Legislative Session, Week 5
This week saw the override of Governor Laura Kelly’s veto of a Republican-friendly map (Sub Senate Bill 355) that will draw new lines for the state’s four Congressional districts. It is assumed that legal challenges to the bill will follow. Following much consternation over the congressional map veto override vote, Senate President Ty Masterson removed two Republican senators from their committee leadership positions. Masterson also removed Senator Mark Steffen of Hutchinson from his vice chairmanship of the senate commerce committee and from his seat on the senate tax committee. In addition, the House and Senate each passed Governor Kelly’s economic development bill aimed at bringing a large national corporate headquarters to the state with a specified capital investment of at least $1,000,000,000. Governor Kelly quickly signed the bill into law in order to advance the state’s economic development proposal to the company. Finally, a bill was introduced this week to designate the Sand Hill Plum as the official state fruit of Kansas.
KDA Grain Warehouse Program Budget Enhancement
In 2021, as part of an agreement with KDA to allow for increased fees on Kansas licensed commercial grain warehouses, KGFA requested, and received, an additional $60k in SGF for KDA’s grain warehouse program to pay for an additional inspector. The $60k was half of the amount KDA indicated that it needed to meet its grain warehouse program budget. Unfortunately, KDA did not request the $60k in its budget for 2023. This week, at the request of your Association, the Senate Ag Budget Subcommittee amended KDA’s budget for fiscal years 2023 and 2024 to include an enhancement of $60,000, each year, to be directed to the agency’s grain warehouse program. The Committee will include this recommendation in its report to the Senate Committee on Ways and Means. Your association is working on a similar enhancement to be made in the House Ag Budget Subcommittee next week.
Corporate Income Tax Apportionment
Kansas currently uses a three-factor system for apportioning income between states for corporate income tax purposes. This week, the House Tax Committee held a hearing on House Bill 2186, a bill that 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 to determine tax liability. The proposed 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 bill may have a cost to the state of approximately $20 million. During the hearing, the Kansas Chamber of Commerce offered language to amend the bill to include additional NAICS codes requested by industry, including 541690 and 112210.Kansas Grain and Feed Association submitted testimony in support of the measure.
KDA Agency Fees
This week, the House Committee on Agriculture passed House Bill 2560 favorably out of committee. The bill would authorize the KS Dept. of Agriculture to extend current fees assessed on agribusiness without raising the fees. The bill would also extend, to 2030, the existing water right transition assistance program (WTAP) administered by the agency. The agribusiness industry testified neutral on the bill and explained to the committee that fees on agribusiness are currently higher than most neighboring states and the associations would oppose any attempt to increase the fees.
Industry Regulations
Legislation on regulatory reform is being advanced this year. House Bill 2087 would amend a law requiring review of economic impact of proposed regulations by the state budget director. The Senate amended the bill to reduce the review threshold from $3 million to, $1 million, in order to increase the number of regulations reviewed by the state budget director. The Senate passed the bill on a vote of 39-0. The bill now goes back to the House to either concur or non-concur with the Senate amendment. Also, as amended this week, Senate Bill 34 would require a five-year review of all agency regulations and allow for a 15-day quick repeal process for outdated regulations. In addition, House Concurrent Resolution 5014 and Senate Concurrent Resolution 1618 would propose a constitutional amendment to increase legislative oversight of agency regulations. If approved by two-thirds of the legislature, the amendment would go before Kansas voters in the 2022 election.
Electric Rates
Kansas has the highest energy rates in our region. Multiple bills were introduced this week targeted at either lowering those rates or stemming any increase in the rates. One bill, Senate Bill 349, is scheduled for a hearing next week in the Senate Utilities Committee. The bill would prohibit the Kansas Corporation Commission (KCC) from approving any increase in retail electric rates for an electric public utility that would result in an annual increase of greater than 1.0 percent when compared to the preceding calendar year’s total retail rates or an average of 1.0 percent per year if the electric public utility does not file for a rate increase in two or more subsequent years. The bill would provide guidelines for the KCC to use for determining the annual limitation. In addition, a hearing was held this week on Senate Bill 359 in the Senate Committee on Assessment and Taxation. The bill would remove the state sales tax on utilities and grant the same authority to cities and counties. Your association provided testimony in support of the measure.
Senate Committee Advances Mega Sales Tax Bill
On Thursday, the Senate Tax Committee took final action onSenate Bill 339, a bill that would exempt food and food ingredients, including food sold at restaurants, from state sales tax. This bill has an estimated fiscal note of approximately $320 million in fiscal year 2023, $782.0 million in fiscal year 2024, and $797 million in fiscal year 2025. The exemption would begin on January 1, 2024. The Committee amended the bill to allow local taxing jurisdictions to remove the sales tax on food, and also amended the bill to include the following: Senate Bill 359, exempting utilities from state sales tax ($55 million fiscal note in 2024); and, include Senate Bill 327, exempting delivery charges from state sales tax ($4 million annual fiscal note). The committee passed the bill out favorably, as amended.
Sales Tax Exemption for Fencing Following Wildfire
Senate Bill 318 which would provide for a sales tax exemption for purchases to reconstruct, repair or replace certain fencing damaged or destroyed by wildfires across the state in December. The bill was amended to provide a permanent exemption on these materials from the state sales tax. In addition, the bill was amended to allow county commissioners to provide a property tax exemption for properties that were damaged during a natural disaster. The Department of Revenue estimates that the bill would cost the state $2.46 million annually. The House Tax Committee will take final action on the bill next Tuesday.
Sales Tax Exemption for Delivery Services
Senate Bill 327 would exempt separately stated delivery charges from state sales tax beginning on July 1, 2022. The state department of revenue estimates the bill would cost the state $4.8 million annually. This week, the Senate passed the bill on the consent calendar, and it now moves to the House for consideration.
Retailer Tax Credit for Collection of State Sales Tax
Senate Bill 463 was introduced this week and referred to the Senate Tax Committee. The bill would provide retailers a remittance tax credit for collecting and remitting sales tax from their retail sales. The bill is scheduled for hearing in the Senate Tax Committee on Tuesday, February 15.
Comprehensive Water Law Bill Introduced
This week, the Chairman of the House Water Committee, Rep. Ron Highland (R-Wamego), introduced his much anticipated bill, House Bill 2686, that would abolish the Kansas Water Office and boldly rewrite much of the existing structure of Kansas water law. The bill would do the following: create the Kansas department of water and environment within the executive branch of government; transfer certain powers, duties and functions regarding water; abolish the Kansas water office, the Kansas department of health and environment, division of environment, the Kansas department of agriculture, division of conservation and the Kansas department of agriculture, division of water resources; establish a water and environment maintenance fund; modify procedures for elections of the board of directors for a groundwater management district, board of directors eligibility, definition of eligible voter and term limits of board of directors; require groundwater management districts to submit annual financial reports to the legislature and to submit water conservation and stabilization plans to the chief engineer; increase water protection fees for public water supply systems, industrial use and stockwatering permit holders; authorize the chief engineer to issue certain orders without review by the secretary of water and environment; establish a civil penalty for obstructions in streams violations and creating the water structures emergency fund. Highland has scheduled hearings on the bill throughout next week.
Resolution Denouncing Natural Gas “Price Gouging”
This week,the House Committee of the Whole passed HCR 5023 favorably. The Resolution, introduced by House Speaker Pro Tem Blaine Finch (R-Ottawa), denounces price gouging and market manipulation in the natural gas marketplace, and supports investigations into the extraordinary price increases of wholesale natural gas during the extreme cold weather event “Uri” during February 2021 that resulted in increased costs on ratepayers.
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. A hearing on the bill was held this week in the Senate Committee on Assessment and Taxation, where Kansas Agribusiness Retailers Association provided proponent testimony.
Research and Development Income Tax Credit
House Bill 2394 would establish a 6.5 percent research and development tax credit for LLCs and small businesses. Currently, Kansas law provides this tax credit for corporations only, and has a one-time transferability. The tax credit is based on the amount above the average of actual qualified research and development expenses in the tax year and the previous two tax years. HB 2394 would allow all taxpayers the ability to claim this tax credit and increases the initial tax credit calculation from 6.5 percent to 10.0 percent. A hearing on the bill is scheduled for Wednesday, February 16 in the House Tax Committee.
Entity Level Taxation for Pass-Through Businesses
This week,Senate Bill 495 was introduced and referred to the Senate Committee on Assessment and Taxation. The bill would establish the “salt parity act” to allow pass-through entities to elect to pay state income tax at the entity level. The bill may receive a hearing next week.
Economic Development Proposal
This week, the Legislature passed, and Governor Laura Kelly quickly signed into law, Senate Bill 347 – the Attracting Power Economic Expansion(APEX) bill. The bill authorizes tax incentives to companies that make a minimum $1 billion investment in Kansas over a five-year period. Kansas is one of two finalists for a $4 billion, 3 million square foot advanced manufacturing facility that would permanently employ 4,000, $50,000-a-year workers and create 16,000 temporary jobs during construction. The bill was amended to include accountability and safeguard measures meant to drive economic development across the state and various industries. Just an hour after the $1 billion-plus mega economic development bill, Lt. Gov. David Toland explained to the State Finance Council the deal the state was extending to a yet unnamed company to offer in inducements to move to the state.
$1,000,000,000 KPERS Transfer Considered
On Wednesday, Feb. 9, the House Committee on Insurance and Pensions held a hearing on House Bill 2561, a bill that would transfer $1 billion from our state general fund to the Kansas public employees retirement system (KPERS) fund during fiscal year 2022. The bill would save the state $100 million annually in interest payments on its outstanding KPERS debt. The first $250 million would be used to pay off the “layering payments” for debt payments the state missed in recent years.