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Minutes for SB334 - Committee on Commerce
Short Title
Extending the time that taxpayers may carry forward the high performance incentive program tax credit.
Minutes Content for Wed, Feb 7, 2018
Chairperson Lynn opened the hearing on SB 334 and requested Revisor Chuck Reimer to provide an overview of the bill.
Senator Alley asked what was the outstanding liability of the HPIP (High Performance Incentive Program) carry-forward credits. Kathleen Smith, Kansas Department of Revenue, responded the carry-forward credits totaled approximately $630 million.
Senator Bollier asked about the total amount of carry-forward credits that would be affected by this bill. Ms. Smith replied the amount was estimated to be $150 million.
Chairperson Lynn recognized Patrick Fucik, Sprint, who provided testimony in support of the bill. SB 334 would provide an extension of investment tax credits awarded to any qualifying company through HPIP, administered by the Kansas Department of Commerce. The bill is similar to the one the Legislature passed in 2011 providing a six-year extension for HPIP recipients at that time. Starting on or after January 1, 2018, the bill would allow HPIP recipients that are in the 16th year (last qualifying year) to take a 25% reduction in their HPIP credits and carry forward 75% of those credits to be used in the future. The bill provides that no more than 25% of those remaining carry-forward credits could be used in any one year until the reduced credit has been fully utilized and the company must continue to certify that it meets the investment requirements of the program. Lastly, the bill provides that no tax credit that expired prior to January 1, 2018 can be revived under the provisions of this amended language. (Attachment 1)
In 2002, Sprint built a world headquarters campus in Overland Park and generated $108 million of HPIP credit. Sprint has struggled with losses for many years since then, except for the last few years when the company has actually had taxable income and utilized roughly $8 million of the credit carry-forward. Since the credit only has a 16 year carry-forward, an estimated $100 million of credit is set to expire at the end of Sprint's fiscal year on March 31, 2018. Sprint has been working with the Kansas Department of Commerce and the Kansas Department of Revenue on this issue. Both Departments are supportive of an incentive to retain capital investment in Kansas and provide some relief from expiring HPIP credits.
SB 334 allows Sprint, and any other company that qualifies, to eliminate a portion of the HPIP credit liability from its books in the 16th year, if unused, while retaining an incentive to keep businesses in the state. For the reduced HPIP credit to be utilized, the taxpayer must still be HPIP certified each year, which ensures the business is paying above average wages and training its employees. This retained business operations and headcount in the state provides for a direct and indirect larger economic benefit to Kansas.
Senator Holland asked if the recent federal tax cuts had an impact on Sprint's support of this bill. Mr. Fucik responded there was no correlation with the federal tax cuts and the request for this bill.
Senator Baumgardner asked what would occur if an extension was approved and there was a merger of Sprint with another corporation. Mr. Fucik responded the Chairman of Sprint has indicated the corporation will be moving forward as a standalone company.
Chairperson Lynn said it is important for the State to get a grasp on its tax credit and other economic development programs.
There was discussion clarifying how the credits would be handled and why the tax credits had not been used.
Senator Alley asked Mr. Fucik if Sprint had received other tax credit incentives in addition to the HPIP credits. Mr. Fucik responded he was not aware of any other tax credits received.
Senator Baumgardner asked if any tax credits were going to be used prior to March 31, 2018. Mr. Fucik said he would need to check on this.
Senator Suellentrop asked if granting this extension would be a further incentive, even if there was a merger with another entity, for the corporation to remain in Kansas. Mr. Fucik replied affirmatively.
Chairperson Lynn recognized John Idoux, CenturyLink, who provided testimony in support of the bill. CenturyLink's investment in Kansas over the past decade has allowed CenturyLink to utilize the HPIP initiative through the generation of credits and sales tax exemptions. However, due to a variety of reasons, including the ongoing and substantial investment in rural broadband deployment, CenturyLink has not been able to utilize all credits generated. Modifying the HPIP initiative by extending the carry-forward period by six years at a reduced rate provides CenturyLink and other companies investing in Kansas with much needed flexibility and workability. It is a reasonable expectation for companies that invest in Kansas, follow the HPIP rules, and earn the HPIP tax credits, to be able to use the HPIP credits. (Attachment 2)
Senator Holland asked the amount of CenturyLink's HPIP carry-forward credits. Mr. Idoux responded approximately $8 million. None of the credits expire in 2018. Mr. Idoux said the HPIP program is an incentive for corporations to retain jobs in Kansas.
Senator Suellentrop noted the importance of CenturyLink's commitment to rural Kansas to provide broadband services.
Senator Olson expressed his appreciation to CenturyLink for retaining jobs in Kansas, which is a prime example of how tax credits drive investments.
Senator Alley said he appreciated Mr. Idoux's honesty when he noted that if the tax credits had not existed, there could have been a bidding war between the states for CenturyLink's jobs.
Chairperson Lynn recognized Eric Stafford, Kansas Chamber of Commerce, who provided testimony in support of the bill. HPIP has become one of the state's most valuable incentive programs for existing Kansas businesses, and for businesses moving into the state. (Attachment 3)
HPIP provides several tax credits for businesses who make qualifying investments in Kansas. The first is a sales tax exemption to use with the company's eligible capital investments. The second is a training tax credit of up to $50,000. Third, and most important to this bill, HPIP allows for a 10% investment tax credit to be claimed against a company's tax liability for an investment that exceeds $50,000 ($1 million in metro counties). These credits can be carried forward for 16 years.
Qualifying businesses that have made a significant investment must show a profit in order to claim their tax credits. If after the 16 years of eligibility under HPIP all credits are not used, that company would lose their remaining credits. SB 334 attempts to extend that period for businesses with remaining tax credits indefinitely, with the trade off that the value of those credits will only be worth 75% of the remaining amount going forward. Additionally, the bill qualifies that no more than 25% of the remaining amount can be claimed in any one year following the 16 year window.
Senator Pilcher-Cook said an overall lower tax rate would create a better economic climate in the state and promote more economic development. Mr. Stafford responded as long as there are taxes, incentive programs drive the market place.
Written only testimony in support of the bill was provided by:
Jason Watkins, Wichita Regional Chamber of Commerce (Attachment 4)
Written only testimony in opposition to the bill was provided by:
Jeff Glendening, Kansas State Director, Americans for Prosperity (Attachment 5)
No testimony neutral to the bill was provided.
Chairperson Lynn closed the hearing on SB 334. The meeting was adjourned at 9:24 a.m. The next meeting is scheduled for February 8, 2018.
