26 Jan 2024 Kansas Statehouse Insider – Week Three
This week, the Kansas legislature sent its tax bill, House Bill 2284, to Governor Laura Kelly for consideration, who on Friday afternoon, vetoed the legislation. The bill proposed a single income tax rate at 5.25 percent (rather than the current two rates), along with exemptions on the first $6,150.00 in income for individuals and $12,300.00 for couples. Additionally, it would have increased the standard deduction, provided residential property tax relief, and created a 0 percent sales tax rate on food beginning in April. The bill would have cost the state $1.6 billion in lost revenues over the first three years.
Governor Kelly’s veto message is included below:
“I support responsible tax cuts, but I refuse to sign into law a reckless flat tax that would take us back to Brownback while doing next to nothing for the middle class. This flat tax experiment would overwhelmingly benefit the super wealthy, and I’m not going to put our public schools, roads, and stable economy at risk just to give a break to those at the very top.
“I am dead set on making sure working Kansans get a tax cut this year. That’s why I’ve brought together Republican, Democratic, and Independent legislators to champion a $1 billion tax cut over three years, all while maintaining our state’s strong fiscal foundation. Our bipartisan tax cut will make it easier for families to pay for groceries, child care, diapers, and school supplies – while also cutting property, sales, and retirement taxes.
“While I urge the legislature to take this irresponsible flat tax experiment off the table once and for all, know that I will not let legislators leave Topeka this year without meaningfully and responsibly cutting taxes for middle-class families. I will call a special session if I have to – anything to ensure Kansans see tax relief, immediately. Let’s work together to cut taxes in a way that continues our economic growth while benefiting all Kansans, not just the wealthiest.
“Therefore, under Article 2, Section 14(a) of the Constitution, I hereby veto House Bill 2284.”
Alternatively, Democrats in the House and Senate have introduced the governor’s tax plan through HB 2586 and SB 377. This proposal would reduce taxes (and state revenues) more than $1 billion over three years. The bill would increase the standard deduction, reduce residential property taxes, eliminate state taxes on Social Security income, remove the state sales tax on groceries, diapers and feminine hygiene products, provide tax relief for childcare and create a back-to-school state sales tax holiday. The governor also continues to work on growing support for her proposal to expand Medicaid in the state.
Meanwhile, the various committees are holding hearings as bills continue to be introduced and filing deadlines rapidly approach. We continue to hear that this will likely be a short session, with a goal of adjournment coming quickly once a tax bill and budget are passed.
2024 Legislative Action Day
Kansas Agribusiness Retailers Association (KARA), Kansas Grain and Feed Association (KGFA) and the Kansas Cooperative Council (KCC) hosted the annual Legislative Action Day on Wednesday, Jan. 24, 2024, in Topeka. Guest speakers were Senator Virgil Peck (R-Havana) and Representative Ken Rahjes (R-Agra), Chairmen of the Senate and House Committees on Agriculture, gave updates on priority legislative initiatives in 2024. Members then received briefs on legislative issues of importance to agribusiness industry before heading to the Kansas State Capitol and visiting with their legislators. The event was capped with an evening dinner reception with legislators at the Topeka Country Club. A PDF of the issues we discussed is available for your reference.
Kansas Agricultural Remediation Reimbursement
House Bill 2477 was pre-filed at the request of the Kansas Grain and Feed Association and Kansas Agribusiness Retailers Association. The bill seeks to amend the agricultural chemical environmental remediation reimbursement program by increasing the maximum reimbursement from the fund from $200,000 to $300,000 for each eligible facility. The bill is scheduled for hearing in the House Committee on Agriculture on Tuesday, January 30.
Train Max Length, Set Back Distances, and Blocked Crossings
Last year the Senate passed Senate Bill 271, which would create a maximum train length (8500 feet) in Kansas, and require railroads to maintain a minimum distance of 250 feet between a near-edge railroad crossing and stored railroad rolling stock at crossings. The bill was referred to the House Transportation Committee with Chairman Shannon Francis (R-Liberal). There may be separate legislation limited to blocked crossings. This month, the US Supreme Court refused to review a decision from the Ohio Supreme Court which ruled that an Ohio law preventing blocked crossings was preempted by federal law. The state of Kansas had joined in that appeal.
Two Person Train Crew Legislation
In 2023, the Kansas department of transportation (KDOT) passed a regulation requiring at least two crew members in each lead locomotive operated in Kansas. This week, in response to that regulation, SB 402 was introduced to prohibit KDOT from regulating crew sizes for class II and class III railroads.
State Conservation Fund
This week, the House Committee on Agriculture held a hearing on House Bill 2541, a bill that would establish a “state conservation fund”, “working lands conservation fund”, “wildlife conservation fund,” and “Kansas outdoors fund.” These funds would be funded with (1) a sales tax carve-out from the sale of sporting good equipment, and (2) a transfer of up to $32M annually from sports wagering revenues deposited into the lottery operating fund. Section 2 of the bill would establish the working lands conservation fund (WLCF). Under the bill, the WLCF would receive 50 percent of the revenue in the state conservation fund annually. The WLCF would be administered by KDA’s Division of Conservation through agency rules and regulations. Government entities and non-profit entities would be able to apply for grants from the fund to be used for purposes that “benefit the natural resources of the state by promoting conservation on working lands” through a list of conservation practices set forth in the bill. It is our understanding that there is broad support for this legislation from the commodity groups in the state.
Nuisance Abatement
In 2021, Senate Bill 52 was enacted to grant the Sedgwick County Commission authority to order the abatement of nuisances from land within an unincorporated area of the county, and to recover any costs incurred from the landowner. KGFA and KARA successfully amended the bill to broadly exclude agribusiness facilities. The law was set to expire this July. This week, the Senate Committee on Local Government held a hearing on Senate Bill 362 to remove the sunset provision and make the law permanent. In addition, an informational hearing was held on SB 162, a bill that would create a similar nuisance abatement authority in Riley County. This bill includes agribusiness exemption language that ag stakeholders were able to secure into the Sedgwick County law.
Hemp Grain
As introduced, House Bill 2168 would add industrial hemp seed to the statutory definition of grain in the Kansas grain warehouse law. As no hemp ingredients have been federally approved for use in animal feed, and it is unknown whether hemp ingredients are safe for animals or can be utilized as a source of nutrition when consumed for extended periods of time. These questions should be answered before hemp is used for commercial feed purposes to ensure the safety of the public, animals, and the agricultural industry. The bill received a hearing in the House Committee on Agriculture last session where KGFA joined other stakeholders in opposing the bill. This week, the committee amended the bill to remove all the proposed language and replace it with language that reduced hemp license and registration fees. The bill was passed out of committee as amended.
Single Sales Factor Apportionment
Kansas currently uses a three-factor system for apportioning income between states for corporate income tax purposes. Legislation was introduced in recent years to allow corporate taxpayers to elect which methodology to use when apportioning their corporate income between Kansas and other states in which it operates to determine tax liability. Past legislation would have allowed certain taxpayers to elect to use a single-sales factor apportionment formula to apportion their corporate income tax liability. While similar legislation will be introduced again this year, the bill will require corporate taxpayers to use the single factor sales method (after a two-year phase-in period), rather than allow for an election. The draft bill – which has not yet been introduced – will also include provisions to offset potential increase in liability for some companies, including, a tax credit for deferred tax liability using a “New Jersey model” and lowering the rate to the nearest 1/10th of a percent. The bill is still being fine-tuned and will be circulated to stakeholders prior to being introduced in the House Tax Committee.
Property Tax Relief
Property tax relief is a top priority of the Governor, and Republican and Democrat legislators in both the House and Senate. Much of that relief is likely to be specifically focused on residential property owners. Here are just a few of the proposals being discussed:
– Senate Bill 94 would discontinue state property tax levies for the Kansas educational building fund and the state institutions building fund.
– Senate Bill 97 would increase the exemption for residential property from the statewide school levy from $40,000 to $65,000.
– Senate Bill 196 would reinstate transfers from the state general fund to the Local Ad Valorem Tax Reduction Fund (LAVTRF). The transfer is based on 3.63 percent of the state general fund portion of retail sales and compensating use taxes collected in the previous calendar year. The bill would cost the state $119 million. The last transfer to the LAVTRF occurred in fiscal year 2003, but the legislature has routinely suspended transfers every year since. The Senate Tax Committee held a hearing on the bill this week.
– Senate Bill 327 would exclude social security payments from household income and increase the appraised value threshold for eligibility of seniors and disabled veterans related to increased property tax homestead claims. The bill would also amend the golden years homestead property tax freeze program.
– Senate Bill 332 would authorize a transfer from state general funds into the LAVTRF in fiscal year 2025, and all fiscal years thereafter, and require the funds to be distributed directly to residential property taxpayers in the form of a rebate.
– SCR 1611 would amend section 1 of article 11 of the Kansas Constitution to limit annual increases in real property valuations to 4 percent. The bill would require a ballot question for voters to approve the measure during the next state-wide election. The Senate passed the bill last year and it is now with the House.
– SCR 1613 would amend section 1 of article 11 of the Kansas constitution to decrease the assessment rate of residential property in determining property taxes.
Personal Property Tax Renditions, Reduced Penalties for Failing to File
Last year, the legislature passed Senate Bill 8 to reduce penalties for the late filing, or failure to file, personal property renditions annually to the county appraiser. The bill was important to the grain elevator and biofuel industries following a 2022 Kansas Court of Appeals decision finding that grain elevator machinery and equipment should be property classified as personal property rather than as fixtures to the realty. The bill was amended to allow county appraisers to waive late penalties, and for penalties to be set aside if the machinery and equipment was previously classified as real property. Following passage of the bill, it was placed into a conference committee report with a dozen other bills which caused it to be vetoed by Governor Kelly. The bill is being looked at again this year, and the House Tax Committee will hold an informational hearing on the bill on Monday, January 29.
Sales Tax Exemption on Installation Services for Reconstruction, Repair to Property
House Bill 2585, introduced this week in the House Tax Committee, would create a new sales tax exemption on services for installing or applying tangible personal property for the reconstruction, restoration, remodeling, renovation, repair or replacement of a building or facility.
Prohibiting Foreign Ownership of Real Property
Last session, multiple bills were introduced to prohibit the conveyance of real property in Kansas to “foreign adversaries”, as the term is defined by federal law (Senate Bill 283, and House Bill 2397). This issue is a high priority item for Kansas Attorney General Kris Kobach and House and Senate leadership. The Senate Judiciary Committee held a hearing on SB 283 before amending it and placing the contents of the bill into Senate Substitute for House Bill 2069. While no further action was taken on the bills last session, similar legislation was passed in multiple states. Across the Midwest, state lawmakers are proposing legislation to prevent foreign companies and individuals from buying agricultural land. New bills have been filed in several states, including Nebraska, Iowa, Illinois, Missouri and Michigan. Last year, proposals were introduced in more than 35 states and 10 new states adding restrictions. A key provision being debated in Kansas is whether the legislation will be retroactive, to require the divestment of properties currently owned by companies located in certain foreign nations. The House will be considering various foreign adversary bills, including prohibiting entities deemed “countries of concern” from purchasing land located within 150 miles of a military installation. There may also be legislation prohibiting the selling of drones in the state that are from a country of concern or made with parts from a country of concern. Heightened attention on this issue comes hard on the heels of a cyberattack on the Kansas state judicial computer system last fall by Russian hackers. House Ag Committee Chairman, Rep. Ken Rahjes, has introduced a new bill that is based on HB 2397.
Animal and Ag Facilities Protection
In 2021, the 10th Circuit U.S. Court of Appeals found unconstitutional parts of a law – often referred to as the “ag-gag law” – that was intended to keep undercover investigators off the property of animal facilities with the intent of exposing certain activities at the facility. Critics of the law said that it criminalized undercover investigations to expose conditions at animal facilities. The law, which had been on the books since the 1990s, was held to be an unconstitutional violation of the right to free speech. In an attempt to make the law comply with constitutional requirements, animal ag stakeholders introduced SB 389 to amend the law to apply to physical trespass or making a false statement on an employment application to gain entry.
Workers Compensation Permanent Disability Benefit
Last session, the Senate Commerce Committee held a hearing on Senate Bill 38, a bill that would increase the maximum Kansas workers compensation benefits payable by an employer for permanent total disability suffered by an injured employee. Under current law, the maximum workers compensation benefit that is payable by an employer to an employee for permanent total disability is $155,000. The bill would have increased that amount to $350,000. Permanent total disability is paid out over time using an average weekly wage up to the statutory cap. Using the maximum average weekly wage, it would not reach $155,001. While the bill did not advance, additional conversations were held between labor and industry, and stakeholders are drafting new legislation for this session which may be introduced soon.
Unemployment Insurance Updates
House Bill 2570 was introduced this week by House Commerce Committee Chairman Rep. Sean Tarwater. The comprehensive bill would amend the Kansas employment security law by defining “benefit year”, “temporary unemployment” and other terms in the law. It would also require electronic filing for certain employers, establish qualifications for employment security board of review candidates, extend the deadline for new accounts following business acquisitions, make certain changes to the employer rate schedules, enable employers to report claimant work search issues, confirm legislative coordinating council oversight for the new unemployment insurance information technology system implementation, authorize the secretary to grant temporary unemployment, require the secretary to annually publish certain data, and abolish the employment security interest assessment fund. An informational hearing was held this week to explain the bill, and a full hearing will likely be held next week.
Defining Lead-Free Pipes and Amending Solid Waste Management Fund
Senate Bill 331 was introduced to remove an exception for leaded joints from public water supply system laws. The bill would also update terminology relating to hazardous waste generated by certain persons. The bill would also amend the solid waste management fund, administered by KDHE, to allow it to be used to reimburse counties or cities who conduct programs for the collection of “agricultural pesticide wastes” along with other household hazardous wastes. This week, the Senate Committee on Agriculture and Natural Resources held a hearing on the bill and advanced it out of committee favorably. A companion bill, HB 2486 was introduced in the House.
Origin Source Determination for Sales Tax
House Bill 2566 would create an origin-source rule for determining where a sale takes place, which determines the applicable sales and compensating use tax rate. While Kansas is currently a destination-based state for determining sales tax rates, it was previously a point of origin of the sale (origin-source) state. Kansas changed to a destination-based state when it joined a multi-state sales tax compact a few decades ago. It is argued that the bill will ease sales tax compliance for Kansas businesses.
House Water Committee Update
This week, the House Water Committee received annual fiscal report presentations from the Kansas Water Authority, Western Kansas GMD 1, Katie Durham, Manager; Equus Beds GMD 2, Tim Boese, Manager; Northwest GMD 4, Shannon Kenyon, Manager; and Big Bend GMD 5, Orrin Ferril, Manager.
House Water Committee Agenda for Next Week
Tuesday, Jan. 30: Presentation from Ground Water Management District 3, Mark Rude, Manager
Thursday, Feb. 1, Hearing on HB 2459, prohibiting the change of the point of diversion of a water right if such change causes the safe yield of the source of water supply to be exceeded.
Water Structure Licensing Fees
This week, KDA requested introduction of HB 2526 amending the Stream Obstruction Act. The legislation would install graduated agency inspections of dams, based on hazard level. The bill would also provide KDA authority to assess civil penalties for lack of action on non-compliance issues and allow KDA to assess registration fees and increase permit fees.
Point of Diversion Exceeding Safe Yield
Representative Kenny Titus (R-Manhattan) introduced House Bill 2459 to amend the Kansas water appropriation act. The bill would prohibit changing the point of diversion of a water right if such change would cause the safe yield of the source of water supply to be exceeded. The bill is scheduled for hearing in the House Water Committee on Thursday, Feb. 1. It is understood that the purpose of the bill could be accomplished through a DWR regulation.
Private Pesticide Applicator Certification
Kansas Dept. of Agriculture (KDA) introduced HB 2607, a 20-page bill amending the Kansas pesticide law following changes made by the EPA to their agency pesticide applicator regulations which Kansas is now also required to adopt to maintain authority to regulate the industry. The bill will, among other things, establish new training requirements and supervision requirements pesticide applicators of restricted use pesticides, and it will also grant KDA civil and criminal penalty authority on commercial and private applicators. The bill is tentatively scheduled for hearing in the House Committee on Agriculture on Wednesday, January 31. A summary of KDA’s proposed changes can be viewed here: KDA Certification and Training Plan.
Remote Worker Grace Period
House Bill 2420 would allow a grace period for remote workers regarding paycheck withholding requirements. Additionally, it would exempt certain employees who perform employment duties in more than one state from income tax withholding and reporting requirements unless the earnings occurred in the state of the employee’s residence, or in a state that the employee performed employment duties for more than 30 days during the calendar year. While the bill did not move forward last year, action is anticipated soon this session.
Rules and Regulations
A bill to revise the rules and regulations procedure for state agencies was introduced in the House Commerce Committee. The bill adds protections for industry by requiring an agency proposing new regulations which have an economic impact greater than $1 million over the first five years to introduce, and pass, a bill by the full legislature. If the agency fails to complete a proper economic impact statement, the director of the budget must reject the proposed regulation. The amendments are intended to provide protections for industry against burdensome, restrictive and expensive regulations, or regulations which exceed legislative intent. No bill number yet but should be prepared soon.
Utility Cost Recovery Legislation
Kansas’ largest energy generating company, Evergy, introduced HB 2527, a bill that would make four significant changes concerning cost recovery:
1. Allow plant-in-service-accounting (PISA), to allow Evergy to collect depreciation expense and return for assets once they are used and useful, versus the current practice of including assets during a rate case proceeding. This change would increase rates without a customer benefit.
2. Capital structure changes. In the 2023 rate case, the KCC used Evergy’s corporate holding company capital structure (ratio of debt and equity) for rate setting. This resulted in a significant portion of the rate decrease for Evergy Metro. This provision would require the KCC to only use the capital structure of the operating company, which would increase rates.
3. Pre-determination changes. This section creates an opportunity to use a construction-work-in-progress (CWIP) tracker to increase revenues and earning opportunities when constructing a new gas generation facility. This change would increase rates and put additional risk on customers to finance projects.
4. Eco/Devo rate changes. This would increase load sizes (from 300kW to 25MW) which allow customers to be eligible for higher discounts and extend the length of discounts from 5 to 10 years. The proposal also deletes the current option to track and defer program costs. This provision will increase rates, but the increased load would lower rates over time.
Other Utility Legislation
HB 2588, concerning net metering, was introduced on behalf of “Clean Energy Business Council.” The bill would increase the capacity limitation for the total amount of facilities subject to net metering that may operate within the service territory of investor-owned electric utilities. It would also require facilities to be appropriately sized based on the customer’s average load and establishing requirements for exporting power to a utility from a facility subject to net metering. The bill includes language that was reached as an agreement between the council and Evergy. A hearing is scheduled in the House Utilities Committee on Thursday, Feb. 1.
HB 2591 would exempt the Kansas Corporation Commission from Kansas open meetings act (KOMA) concerning docketed proceedings. The bill is intended to allow the KCC members to communicate and deliberate issues without violating KOMA.
HB 2597 would extend Kansas corporation commission timelines for making determinations on proposed rate-setting for electric generating or transmission facilities. The bill was introduced on behalf of ratepayer stakeholders.
Retailer Sales Tax Collection Tax Credit
SB 41 would create a sales and use tax remittance credit for retailers. The bill is intended to compensate retailers, in part, for their work in collecting and remitting sales taxes to the state. The credit would be an amount equal to 1.5 percent of the amount of sales and use tax being remitted by the retailer, with a monthly cap of $300 per retailer. This week, the Senate Tax Committee passed the bill out favorably.
Third-Party Funded Litigation
Senate Bill 74 was introduced last session to require disclosure of third parties that fund litigation and allow for joint liability of costs and sanctions against third-party funded litigants. It would also require certain discovery disclosures and payment of certain costs for nonparty subpoenas. The Senate Judiciary Committee will hold a hearing on the bill on Wednesday, January 31.
Kansas Trade Service Scholarship Act
Senate Bill 378, introduced this week by Senator Rob Olson (R-Olathe), would establish the Kansas trade service scholarship act and make appropriations to the state board of regents for fiscal year 2025 to provide grants to community colleges, technical colleges and the Washburn institute of technology for capital improvements, repairs and maintenance of trade program buildings. The bill would appropriate $10 million from the state general fund, for the fiscal year ending June 30, 2025, to the State Board of Regents to fund the Kansas trade service scholarship.
Other Bills of Interest
SB 346 restricts who can propose rezoning amendments to city or county zoning regulations. Hearing in Senate Local Government, Tuesday, 1/30/24
SB 376 extends the time period for single city port authority income tax credit
HCR 5021 constitutional amendment classifying all-terrain vehicles for tax purposes