Kansas Looks to Cut Corporate Income Tax

The Kansas Legislature likely will include a cut in corporate income tax this session, but just how deep such a cut will be made remains uncertain, reports the Wichita Eagle.

The House Taxation Committee is expected to receive two bills reducing the corporate income tax rate. Both houses of the Legislature and Gov. Kathleen Sebelius appear to support the general idea of a cut.

Bernie Koch, vice president of the Wichita Metro Chamber of Commerce, testified that attracting “back office” operations such as accounting, human resources and purchasing of large corporations are among the benefits of cutting the corporate income tax.

"A lot of these companies are already looking in the Midwest, where the price of land is lower and there is a good work force," he said.

Koch pointed to the benefits produced by South Dakota's attractive tax policies. As a result, he said, Sioux Falls has developed into the country’s ninth-largest financial cluster.

In a recent survey by Area Development Online, companies said that corporate income tax rates are the third-most important factor they consider in picking a site for a new facility. The first two are labor costs and adequate highway access.

In Kansas, corporate income is taxed at 4 percent up to $50,000. A surcharge of 3.35 percent (7.35 percent total) is then added on corporate income over $50,000.

House bills 2170 and 2495 would trim the surtax from 3.35 percent to 2.75 percent over three years, to give Kansas a top rate of 6.75 percent.

Missouri charges a top rate of 5.15 percent and Oklahoma, 6 percent.

This would be the third business tax cut in the works by the state. Others include a move to cut or eliminate the franchise tax and reduce the unemployment tax.

The House is in a tax-cutting mood, said Nile Dillmore, D-Wichita, a member of the Taxation Committee.

"On the House side, there is not a tax we are not going to cut," he said. "People are staying up at night with a red pen in hand slashing everything in sight."

Dillmore cautioned that the state is already projecting deficits by 2010, even before a potential cut in the corporate income tax.

Enacting House Bill 2495 would cost the state treasury $5.8 million in 2008, rising to $22.2 million in 2009 and $29 million in 2010, according to the state budget office.

Sen. Les Donovan, R-Wichita, vice chairman of the Senate Appropriations and Taxation Committee, said a cut in the corporate income tax is likely, but said his colleagues are more cautious.

"The key is the revenue," he said. "If it comes in higher than estimated, we'll probably put that toward tax cuts."

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