Kansas Senate Rejects Rollback of Passthrough Exemption

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By Christopher Brown

The Kansas Senate rejected by an overwhelming margin April 6 a bill that would have brought the curtain down on a controversial tax break for passthrough income and instituted a single income tax rate for all taxpayers.

The bill, S.B. 214, was defeated by a margin of 37 to 3.

Bernie Koch, director of the Kansas Economic Progress Council, told Bloomberg BNA before the debate began that he didn’t think supporters had the votes to pass the bill, as it had enemies on both the left and right.

After the final vote, Koch said, “This was pretty much what we expected,” Koch said. “This was a bill that managed to bring together Democrats and moderate Republicans who supported the earlier bill, and conservative Republicans who are against any taxes. I guess politics makes strange bedfellows.”

The debate over the passthrough exemption in Kansas has taken on a new salience since the election of President Donald Trump, who is working with Republicans in Congress on a variety of tax cut proposals, including one that would tax income from passthrough entities at 25 percent, well below the proposed 33 percent top income tax rate.

Tax Talk Stalled

Further action on tax policy will now have to await the May 1 beginning of the veto session, according to Rep. Steven Johnson (R), chairman of the House Taxation Committee.

“The next step is going to be a conversation between me and my Senate counterpart, Sen. Caryn Tyson (R), who heads up the Senate tax committee,” Johnson said. “We’ll need to see if we can put together a roadmap for how to go forward. We did our work in the House earlier in the session, and we still have to figure out how we can get a few more votes in the Senate.”

Johnson was referring to a House bill, H.B. 2178, which would have repealed the passthrough exemption and raised income tax rates, and which was approved in February in both the House and the Senate by substantial but not veto-proof margins. After Brownback vetoed the bill, the House voted to override, but a similar effort in the Senate failed by three votes.

“We’ll probably be looking at something that’s similar to H.B. 2178,” Johnson said. “But we’ll need to tweak it to get those votes in the Senate.”

In a statement, Melika Willoughby, a spokeswoman for Gov. Sam Brownback (R), who had indicated the day before that he was prepared to sign S.B. 214, said, “Governor Brownback appreciates the Senate Tax Committee’s flat tax proposal and their work on the bill, and will continue working with the legislature on taxes and other issues when they return.”

S.B. 214 emerged from the Senate Assessment and Taxation Committee earlier this week amid skepticism that it would receive serious consideration. But the bill vaulted to the head of the line April 5 when it received the approval of Brownback, who has been adamant in his support of the passthrough exemption and the rest of the tax cut package passed by the Legislature in 2012.

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of S.B. 214 is at http://src.bna.com/nIh.

A summary of S.B. 214 is at http://src.bna.com/nIi.

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