Gov. Kelly vetoes massive tax reform bill pushed through by GOP

TOPEKA — Gov. Laura Kelly vetoed Friday a bill granting tax breaks to business sought for years by corporate lobbyists, implementing a sales tax on out-of-state online transactions proposed by the governor and increasing the standard income tax deduction for filers.

Kelly, a Democrat, said the Republican-led Legislature continued to press for income tax changes that imposed irresponsible reductions on state revenue in the manner done in 2012 and 2013 by then-Gov. Sam Brownback.

“I have vetoed Senate Bill 50,” she said. “For very obvious reasons. I have lived through the Brownback tax experiment. I saw what irresponsible fiscal policy did to our state. It devastated our agencies. It undermined our social safety net. It required us to remove all funding for infrastructure programs. And, then, most obviously really underfunded our schools. I can’t let that happen again.”

This was the third time that Kelly had vetoed some provisions of tax reform sought by Republicans in the Legislature and lobbyists serving interests of business. This could be the first of a series of vetoes from Kelly as the governor works through the flurry of bills adopted before the Legislature adjourned for a three-week break.

When the Legislature returns to Topeka in May, an attempt by the House and Senate to override veto of the tax bill could be expected.

The vetoed tax legislation was adopted by the House on a vote of 81-43 ad by the Senate on a vote of 30-10. If those votes held, that would be sufficient for an override in the Senate but not the House.

House Speaker Ron Ryckman, R-Olathe, and the two other top House Republicans said the governor’s perspective on tax policy was holding back economic recovery from the pandemic.

“Sadly, Governor Kelly seems confused about which administration we are living in,” he said. “She is now governor and her continued insistence on higher taxes, depriving Kansans of the benefits of federal tax cuts and increasing the tax burden on Kansas employers is the only experiment we are suffering through. We stand ready to take up an override vote for the good of hardworking Kansans.”

Senate President Ty Masterson, R-Andover, said Senate Republicans looked forward to overriding Kelly’s veto on behalf of “middle-class families and Main Street businesses who pay the bills.”

Under Senate Bill 50, the state would require collection of sales and compensating use tax by so-called marketplace facilitators such as Amazon starting July 1. The measure would apply to out-of-state businesses with annual gross receipts on sales into Kansas of more than $100,000.

The bill granted individual income taxpayers in Kansas the option of itemizing on federal income tax filings while taking the standard deduction for state income tax purposes.

In addition, the standard deduction for Kansas filers starting in tax year 2021 would increase to $3,500 from $3,000 for individuals, to $6,000 from $5,500 for single head-of-household filers and to $8,000 from $7,500 for married filers filing jointly.

Corporations that held income offshore would be exempt from state income tax when that cash was brought into Kansas. The legislation also enabled meal expenditures to again be deducted as business expenses beginning in tax year 2021.

The bill clarified victims of identity theft in Kansas would owe no individual income tax on unemployment compensation fraudulently obtained by someone else.

The state’s tax revenue estimators are scheduled to reconvene later this month to recalculate how much money the state could be expected to collect in property, income and sales tax during the remainder of the current fiscal year as well as the next. These projections will be used by the Legislature to put finishing touches on a new budget and consider anew provisions of tax reform.

The vetoed bill could have added up to a $285 million reduction in annual revenue to the state government. Another issue to consider would be the unexpected $359 million loss in state revenue due to tax exemptions on $6.6 billion that flowed to businesses from federal Paycheck Protection Program.

Another concern for the governor was the Legislature has yet to renew the 20-mill property tax levy that delivers about $725 million annually in funding for K-12 public education. The Legislature is holding the school funding hostage in an attempt to gain traction for a separate bill that could diminish property tax revenue state, county and city governments.

In a brief news conference in the Capitol rotunda, Kelly said the philosophy of taxation pushed by some Republicans in the Legislature would derail investments in infrastructure, education, social services and other core functions of government that serve interests of economic development statewide. She said Kansas experienced an estimated $2.5 billion in new investment from businesses last year.

“These companies chose to make Kansas home in large part due to the state’s recent investments in our economic development tools, prioritizing funding for infrastructure improvements and reinvesting in our students,” said Kelly, a former state senator from Topeka.

“As many of you with whom I served well remember, in order to provide sustainable funding for essential government services, we cannot return to the era of perennial, self-inflicted budget crises that undermine the very fabric and foundation of our state,” she said.

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