(Syndicated to Kansas newspapers Dec. 19 2016)
We’re down to the just-before 2017 Legislature time when every little hint about what the governor would or would not consider in the march to a balanced budget becomes important.
And last week, at a series of press conferences, Gov. Sam Brownback said that he might, just might, consider some proposals to increase state revenues to balance the budget—apparently blended with reductions in spending.
Reporters have spent a lot of time crafting questions that would bring some subtle indication about just what tax increases the governor would, with just his signature, allow to become law.
So far, we’ve managed to get one pretty solid indication of a tax that he absolutely has no interest in. That’s a start.
That “don’t do it” that was the firmest is his opposition to placing a state sales tax on services, as differentiated from hard, hold in your hand, products.
So…it’s time for the state’s lawyers and accountants and financial service owners to take a deep breath and then maybe a drink because the governor doesn’t want to tax the services they provide.
Oh, and that no-tax on services extends, of course, to nearly everyone who sells their services to make a living, ranging from roofers to lawn services to…we guess…pole dancers.
Those services amount to billions of dollars of transactions that don’t make the state as much in revenue as selling a bar of soap or a new shirt.
While that no-services tax might have a positive effect on those providers it doesn’t do a thing for revenues.
It does, though, echo through the Statehouse, and it means that those sales tax-free service providers won’t have to spend time and money lobbying the Legislature to keep their sales off the tax rolls. And, for them, it’s a good thing.
Brownback also last week defended what started out as a small business tax break, the Limited Liability Corporation exemption from Kansas income tax.
Aimed to help small businesses keep enough profit to hire new workers and buy equipment, it quickly spread to giant businesses which don’t have to pay income taxes on their income that isn’t considered a wage.
Brownback said that the LLC exemption is helping job growth, and while the $200 million to $300 million cost in lost income tax revenues to the state is large, it also doesn’t allow deductions for those non-tax business expenses. What the trade-off between taxes and allowing exemptions for business expenses works out to is not clear, but it pares the tax loss by whatever those businesses could come up with as deductible expenses.
And…Brownback notes, some states are taking a look at the LLC tax exemption here for possible use in other states. He said Kansas’ plan sounds a lot like President-elect Donald Trump’s plan to lower corporate taxes so those businesses have more money to spend on expansion, higher wages for their employees and more reason to keep jobs in the United States rather than send them to low-wage countries.
It really comes down to the politics of the issues. Everyone who pays income taxes has a good argument that the guy down the street with an LLC ought to pay something to the state, too.
But those sales-tax exempt service-providers don’t have to go to the expense and trouble of collecting taxes. And those income tax-exempt businesses don’t have to spend time and effort collecting information to use for tax deductions and then pay a sales tax-exempt service provider accountant or lawyer or tax preparer to figure their tax bills.
Or, do we tax ‘em both, and solve this revenue problem?
Can’t tell…yet…