Special Legislative Session Concludes

The Kansas Legislature convened June 18 for a special session to address tax cuts and a STAR bond economic incentive package to lure the Kansas City Chiefs and Kansas City Royals to Kansas. Relevant legislative committees met the day before to hold informational hearings on bills that would be introduced and considered the next day.

Comprehensive Tax Plan – SB 1, the compromise tax plan agreed to by legislative leaders and Gov. Laura Kelly, passed the Senate 34-4 and the House 121-2. The legislation is similar to previous tax plans, but was scaled down to have a smaller fiscal impact. The Legislature opted to provide greater income tax relief instead of broad-based property tax relief advocated for by a coalition of agricultural and business groups, including KLA. Gov. Kelly is expected to sign the legislation.

SB 1 does the following:

• Increases the residential exemption from the statewide mill levy from $42,094 to $75,000. 
• Eliminates the lowest income tax bracket and moves the state to a two-bracket system, with rates at 5.58% and 5.2%. 
• Increases the standard deduction by 3% and raises personal exemptions from $2,250 per person to $9,160 for single filers and $18,320 for joint filers. The exemption would be $2,320 for dependents. 
• Reduces the privilege tax rates applied to financial institutions to align with recent changes to corporate income tax rates. 
• Increases the childcare tax credit from 25% to 50% of the federal allowance. 
• Prohibits the sale price of a 1031 exchange property from being considered an indicator of fair market value. 
• Eliminates the income tax on Social Security income.  
• Repeals the statutory transfer of funds to the Local Ad Valorem Tax Reduction Fund and the City-County Revenue Sharing Fund.

Capping valuation increases on real property – KLA staff testified in opposition to SCR 1604, a proposition introduced during the special session to amend the Kansas Constitution to limit the valuation increase of real property to 4%, or a lesser amount if determined by statute, in any tax year. KLA staff explained the bill actually would not provide property tax relief. The legislation only would affect one component of total property tax liability, which is the product of valuation multiplied by the assessment rate multiplied by the mill levy, which is set by the statewide mill levy or local government budgets. Additionally, artificially capping valuation increases could shift the tax burden from one class of property to others if appraisals of certain classes increase more than 4%, while others increase by less than 4%. Currently, several counties have seen significant increases in residential values, while agricultural values have leveled off or declined. SCR 1604 also would disrupt and likely invalidate the use-value appraisal formula used to determine valuation on agricultural land. The resolution ultimately was not considered during the special session, but could resurface during the next regular session.