Brief(1)
S.B. 416 would amend existing law concerning the tax credits a qualified insurance company may claim under the High Performance Incentive Program, the Kansas Enterprise Zone Act, and the Kansas Community Services Program Act. The bill also would amend existing law authorizing tax credits to eligible insurance companies for making buildings or facilities more accessible to persons with disabilities. These amendments would reflect changes adopted by the 1997 Legislature with respect to insurance company taxation.
Specifically, the bill would reflect the Legislature's action to abolish the privilege tax on Kansas insurance companies (equal to 5 percent of net income) and expand the magnitude of the premium tax (from 1 to 2 percent) on such companies. Moreover, the bill would allow insurance companies (Kansas and out-of-state), beginning in tax year 1998, to claim tax credits against the premium tax and privilege fees. The bill would ensure that tax benefits are equally applied to Kansas and out-of-state insurance companies. Prior to the Legislature's action in 1997, only Kansas companies could claim tax credits against the privilege tax.
In addition, the bill would authorize eligible insurance companies and financial institutions to claim a tax credit for investments in employee training and education under the High Performance Incentive Program. Under existing law, only eligible companies with corporate income tax liability would qualify for such credits.
Finally, the bill would delete reference to the Blueprint for Investment in Kansas Children and Families in the definition of "community services" in the Kansas Community Services Program Act.
Background
S.B. 416 is an outgrowth of a recommendation by the Task Force on the Kansas Insurance Industry for the standing Tax and Economic Development committees to examine whether economic incentives, such as tax credits against premium taxes, can be used to encourage investment in and by insurance companies.
The Senate Commerce Committee's amendments would expand the purposes for which the tax credits could be claimed, to include investments in: community service organizations or governmental entities providing community services under the Community Service Program Act and modifications to buildings or facilities to improve accessibility to persons with disabilities.
The Senate Commerce Committee also amended the bill to delete reference to the Blueprint for Investment in Kansas Children and Families in the definition of "community services." This amendment, proposed by the Kansas Department of Commerce and Housing, would have the effect of decoupling community service activities from objectives set forth in the Blueprint and leaving the determination of eligible activities to individual communities. As previously noted, business firms may receive tax credits for contributions to community service organizations or governmental entities engaging in such services. The Committee was apprised that the Corporation for Change, which was abolished by the 1997 Legislature, had been statutorily responsible for reviewing and monitoring progress in implementation of the Blueprint.
The amendment of the Senate Committee of the Whole was technical.
The House Economic Development Committee amended the bill to ensure that the tax credits claimed by insurance companies under the various programs specified in the bill would apply equally to Kansas and out-of-state insurance companies in accordance with the retaliatory tax statute. The Committee also amended the bill to clarify that the tax credits for insurance companies' investments in making buildings or facilities more accessible to persons with disabilities could be claimed for all taxable years after December 31, 1997.
The House Committee of the Whole amended the bill to clarify that insurance companies could claim tax credits beginning in tax year 1998 for all the other programs addressed in the bill. In addition, the House Committee of the Whole amended the bill to allow any insurance company which makes contributions during the first three months of 1998 under the Kansas Community Services Program Act to claim a tax credit against its 1997 tax liability.
The Division of the Budget's revised fiscal note on the introduced version of the bill assumes the bill would reduce revenues from the State General Fund. The Division indicated that a lack of a proven method for estimating the tax liability of Kansas companies, or a method for estimating the number of companies that would apply for tax credits, made the determination of a precise fiscal impact impossible.
The Division's fiscal note presented the Insurance Department's view that the bill would greatly increase the potential tax credits available to insurance companies because foreign insurance companies are now required to pay the premium tax. (Prior to the repeal of the 1997 law, only domestic companies paid the privilege tax which was superceded by the premium tax.) According to the Insurance Department, only 46 of the 1,500 insurance companies in Kansas are domestic companies. Therefore, passage of the bill could result in an increase of more than 1,400 companies which are eligible for credits against their premium tax payments.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.