House Status:
Senate Status:
Senate Status:
Minutes for HB2186 - Committee on Taxation
Short Title
Allowing single sales factor apportionment of business income for certain taxpayers.
Minutes Content for Tue, Feb 16, 2021
Chairperson Smith opened the hearing on HB2186.
Adam Siebers, Assistant Revisor provided an overview on HB2186 stating the bill would allow a taxpayer to elect to apportion income based on sales factor rather than the current three-factor apportionment. (Attachment 2)
In response to a question, Mr. Siebers stated current requirements for taxpayers that generate income in multi-state jurisdictions, Kansas relies on a three-factor apportionment where sales, property and payroll for the state versus their global operations to determine their tax liability in Kansas. This prevents duplicate taxing over the course of multiple jurisdictions. The bill limits the three-factors down to a single factor for the specific entities when determining their Kansas liability.
Kathleen Smith, Department of Revenue provided information on the fiscal note for HB2186 stating the bill would decrease the State General Fund revenues by $20.5 million in FY2022. The Department indicates that similar results would also occur in future fiscal years. She stated to formulate the estimates, the Department of Revenue reviewed data on the apportionment of business income from the top 600 business having a least $1.0 million in taxable income and found that 199 filers would benefit from making this election to the single sales factor apportionment of business income.
Ms. Smith state HB2186 does provide the North American Industry Classification (NAICS) codes in the proposed legislation and relying on what is placed on the tax return depends on the accuracy of the estimate provided. If the NAICS codes are not reported correctly this could be a problem with the estimate provided. She also noted on the proposed legislation for HB2186 is the effective date. There is nothing in the bill that would provide for the effective date upon publication in the statute books which would be July 1, 2021 is the effective date for tax year 2021 or 2022. The estimate on the fiscal note for HB2186 is based on tax year 2021.
Proponents:
Eric Stafford, Kansas Chamber testified as a proponent for HB2186 stating the fiscal note impact for some businesses will be electing a new apportionment formula that would benefit their company. HB2186 is more focused on economic development than operating under the three-factor formula. Kansas is currently is one of six states operating under the three-factor approach. He noted there has been a shift over the last decade of states making the transition to the single sales factor. Companies with capital intensive operations, such as manufacturing, will incur significantly higher tax in Kansas compared to the forty states that have adopted a single factor approach that only focuses on sales, or a three-factor approach with a heavily weighted sales factor. He noted not all of their membership is for the proposal at this time; therefore, the bill was drafted to make it the election of the taxpayer. To keep the fiscal note down for HB2186 the bill was also drafted to include specific North American Industry Classification System (NAICS) codes. He noted the benefit for HB2186 would be to sunset in 10-years instead of the suggested 3-year. (Attachment 3)
Mr. Stafford stood for questions from Committee members.
Mr. Stafford will provide information to Committee members of how many other states allow a elective single factor, provide a projected number of new jobs that would be created in Kansas, and the benefit for increases of income taxes and property tax.
Representative Stogsdill asked Mr. Stafford if the Chamber's membership would accept a 3-year sunset for HB2186 in order to assess whether facilities are being expanded and jobs created. Mr. Stafford stated he will ask their membership but if there is a sunset for HB2186, he suggested to tie it in with the 10-year election period that is in place.
Randy Stookey on behalf of the Kansas Grain and Feed Association, testified as a proponent for HB2186 noting the industry met with the Chamber on this issue a couple of years ago. No all of their members operate in multiple states but there has been continued consolidation in the industry for the last 30 years and as there is continued consolidation there will be more presence in multiple states. For members that are positioned in multiple states this is an important issue to them. Kansas is in the minority of states that have a multi-factor methodology for finding the amount of net revenue that is taxed in our State. States that their members are present in use a single factor based on sales to apportion their net income that is to be taxed. Kansas and other states they operate in use a multiple 3-tier system that is different methodology and would be difficult to find the right revenue to be taxed in Kansas versus other stated they do business in. He noted the benefit for HB2186 would be to sunset 10-years instead of the suggested 3-year sunset.(Attachment 4)
Mr. Stookey stood for questions from Committee members.
Written testimony as proponents to HB2186 was submitted by the following:
Kevin Walker, Senior Vice President of PUblic Policy, Overland Park Chamber (Attachment 5)
Jason P. Watkins, Wichita Regional Chamber of Commerce (Attachment 6)
Don Brown, Director for U.S. State Government Relations, Cargill, Incorporated (Attachment 7)
Opponent:
Emily Fetsch, Director of Fiscal Policy, Kansas Action for Children (Attachment 8)
Chairperson Smith closed the hearing for HB2186.
Chairperson Smith adjourned the meeting at 4:45 pm.
