Daily Archives: Aug. 14, 2012

Accountants want quick legislative fix to flaw in tax cutting bill

Aug. 14, 20123:59 p.m.

The tax cutting bill Brownback signed into law

OVERLAND PARK — A flaw in the massive tax cutting bill Gov. Sam Brownback signed into law earlier this year will make many business owners pay more taxes when they pay themselves back for investments they made in their businesses, Gary Allerheiligen, a Wichita accountant, told hundreds of business leaders Tuesday.

The legislature needs to quickly fix the inadvertent error as soon as possible once they convene in Topeka for the 2013 session, he said.

When business owners invest in their business, they can pay themselves back using their profits without paying taxes on it. But under the new law, business owners will have to essentially pay capital gains tax on that money.

“That was not the intent of the legislature,” said Allerheiligen who consulted with Brownback about tax policy during the session earlier this year.

Asked whether the legislature would act quickly, Brownback said he couldn’t provide a reliable answer.

“My sense would be that would be something people would try to clear through early,” he said.

When asked how big of a problem the flaw is, Brownback told a reporter he’s not sure yet.

The flaw is part of a complex part of the tax code that deals with business owners’ base investment in their business. When someone starts a business with a $1,000 investment, that becomes their basis and they are only taxed on income beyond that amount.  If they profit and keep that extra money in their business, that becomes the new basis. Under the new law, the basis is frozen and the only change to the basis that can be made is a decrease when a business owners pay themselves back for the initial investment.

“The rationale behind this provision was that if undistributed partnership net profit income is going to be exempt from Kansas income tax for the partners, then that income should not increase the partner’s basis, for Kansas income tax purposes,” a memo from the Department of Revenue says.

 

 

By Brent Wistrom | Filed under Uncategorized | Comments

Brownback and Laffer say tax cuts will drive growth in Kansas

Aug. 14, 20122:05 p.m.

Economist Arthur Laffer addresses the Senate tax committee.

OVERLAND PARK – Gov. Sam Brownback and his celebrity tax policy consultant, Arthur Laffer, said Tuesday that the income tax cuts Kansas lawmakers approved earlier this year will drive growth and make Kansas more competitive with surrounding states.

Laffer told more than 200 people at a small business forum at Johnson County Community College that there is a war among states over tax policy and that nowhere is that revolution more powerful than in Kansas. He said Kansas’ tax cuts and political shifts will produce “enormous prosperity” for the state.

“It’s not a left wing, right wing thing,” Laffer said. “It’s economics.”

Laffer said his studies show states with lower tax rates out-perform high tax states. He said it may not work every day of every week, but he said growth is consistently driven by low tax, low regulation policies.

He said it’s like smoking cigarettes – some people smoke everyday and die at age 97 without a trace of cancer. “But if you want good health I wouldn’t suggest you go out and start smoking,” he said.

In a new paper handed out at the forum, Laffer and Stephen Moore, an economist who founded the conservative political group Club for Growth, dispute studies that say tax cuts don’t produce the economic activity politicians promise and they argue that lower taxes drive growth.

“Taxing rich people and giving the money to poor people will increase the number of poor people and reduce the number of rich people,” Laffer and Moore wrote.

In a brief interview, Laffer said he hasn’t produced a model to project when Kansas will notice meaningful economic growth as a result of the tax cuts.

“These are long-term things,” he said. “It’ll make a big difference in a decade.”

Secretary of Revenue Nick Jordan said he thinks Kansas will see noticeable growth within three years.

Laffer is one of the nation’s most well-known economists, primarily because he created and promoted supply-side economics for former President Ronald Reagan. He has spent decades advocating tax cuts as a way to create private sector prosperity that replaces government revenue lost to the tax cuts with increased revenue generated by private sector growth.

Brownback gave Laffer a $75,000 contract to consult with the state on tax reform efforts earlier this year, and Laffer tried to rally support for a massive tax-cutting plan at legislative hearings during the legislative session. The plan called for reduction of individual income taxes, the phasing out of income taxes on businesses and the elimination of more than a dozen tax credits and deductions, including several popular ones such as the home mortgage deduction and the earned income tax credit that benefits the working poor.

That plan failed to generate support in the House and Senate. But it was advanced to the Senate where it was drastically altered, driving up the cost of the plan. Several Republican senators who initially voted against the bill changed their votes on a second round of voting, approving the bill. Then when the House heard the senate wouldn’t consider a separate negotiated plan, it advanced the bill to Brownback, who signed it.

Starting in January, the plan will reduce individual income tax rates and eliminate income taxes for owners of about 191,000 businesses. The new law collapses state income taxes to two brackets and cuts individual rates to 3 percent for married people who file jointly with income of less than $30,000. Income beyond that will be taxed at 4.9 percent.

Conservatives, including Brownback, project it will drive private sector growth and create thousands of new jobs. Other Republicans and Democrats believe it will force the state to drastically cut important core services, including education and aid for the poor and disabled.

Legislative researchers project it will create a cumulative shortfall of more than $2.5 billion over five years.

A study by the Institute on Taxation and Economic Policy that Laffer disputes calls Laffer’s studies showing low-tax states out-perform others “misleading.”

Their study says residents in “high rate” income tax states have as good or better economic conditions than those in no income tax states.

 

 

By Brent Wistrom | Filed under Uncategorized | Comments

At final budget hearing, city finds extra $30,000 for Cowtown

Aug. 14, 20121:52 p.m.

The city of Wichita put the final touches on and passed a $533 million spending plan for next year, along the way finding an extra $30,000 for Old Cowtown Museum, the city’s western-heritage-themed historical park.

At the final hearing on the annual budget, City Manager Robert Layton recommended shifting the $30,000 from city hotel-motel occupancy taxes. He said he came up with that recommendation after meeting with council members and other Cowtown supporters.

Cowtown has been a sore spot in the budget, with its supporters complaining at previous meetings that it was the only major city attraction getting cut and they were blindsided by Layton’s budget recommendation.

Layton’s initial budget proposal included a $100,000 cut to Cowtown, but a recalculation based on new salary information found the cut would really have amounted to about $80,000, Layton said.

With the $30,000 added to the attraction’s budget on Tuesday, the actual cut will be $50,000, he said.

“I think we would all like it to be less,” said council member James Clendenin, whose district includes Cowtown. “But we have realities we have to deal with.”

Last year, Cowtown needed $208,000 in city support to pay its bills.

Clendenin said he is confident that city staff and volunteers can work together toward “a more robust popular museum.”

“We really do have a jewel,” he said.

Cowtown is run by a partnership between the city government and a volunteer nonprofit board. The city owns the building and grounds while the nonprofit owns the artifacts on display, Layton said.

The board also acts in an advisory capacity to the city government, which manages the attraction.

Dave Crockett, chairman of the Cowtown board, said he was surprised to find out from the newspaper that the attraction was getting cut.

On Tuesday, Layton apologized for that, saying that he thought the board had been informed at one of its meetings before he made his recommendations public.

The council also heard an passionate plea on behalf of Cowtown from Newman University student Rhenee Clark, who spoke at a council meeting for the first time.

She said she moved to Wichita from the country 15 years ago and to her, Cowtown “is a place within the city I can escape to and relax.”

Clark also said Cowntown represents a vital link between the modern city and its colorful past.

“We have to understand where our roots came from,” Clark said. “Money from the cattle drives and the cowboys is what our town was built on.”

Crockett said the board will try to fundraise to make up for the budget cut. Last year, Cowtown raised slightly less than $50,000 total.

“A $50,000 cut is better than a $100,000 cut, so I’ll end on that positive note,” Crockett told the City Council.

Later, he said Cowtown has already made significant cuts in the past few years and reduced staff from 12 to seven employees, but is growing in visitors and revenue.

“We’re going to make every effort to stay on track,” Crockett said.

Both the board and the city are committed to better communication and coordination to come up a new system of governing the attraction and avoid the need the need for future cuts, both Crockett and Layton said.

In the overall budget, the property tax mill rate stays steady, but the budget balances through a package of austerity measures on both the revenue and spending sides of the balance sheet, including:

– About $835,000 in fee increases for fire inspections, electronic transactions, municipal court programs and planning applications.

– A 46-hour-a-week reduction in hours that city libraries will be open. The service hours will be reduced the most at the least-used branches.

– Elimination of 64 city employee positions, mostly through reorganization and attrition. No employees are slated to be laid off.

The biggest single source of revenue for the city is charges for services, $169 million, making up 32 percent of city money.

Property tax generates $104 million, 20 percent of the city income. Sales tax accounts for 10 percent, $54 million.

On the spending side, 38 percent of city money, about $202 million, goes to salaries and benefits. Another 29 percent, $154 million, goes to payments on city debt and 15 percent, $79 million, is spent for contractual payments including such items as utilities, insurance and professional services.

By Dion Lefler | Filed under Uncategorized | Comments

Wichita Council votes tax breaks for speculative buildings

Aug. 14, 201212:11 p.m.

The Wichita City Council approved economic development guidelines today that will exempt new speculative industrial buildings from property taxes for as long as 10 years.

Developers, business leaders and city and county officials who studied business in Wichita concluded that the city would be more attractive to new businesses if it had a ready supply of speculative buildings, which are constructed without a particular user under contract.

Having such buildings available makes it easier to attract new business because it reduces delay and cost of starting or relocating a company, said Urban Development Director Allen Bell. Wichita currently has a severe shortage of business-ready buildings and many of the city’s competitors have publicly owned industrial parks.

City and county staff had proposed a less generous benefit for smaller industrial buildings, with buildings of less than 100,000 square feet getting smaller tax abatements, down to 50 percent for a 50,000-square-foot building.

The council, led by council member Michael O’Donnell, opted instead by a 5-2 vote to go for the full abatement.

“As long as it’s a 50,000 square-foot building, I’d like to do a 100 percent abatement,” said O’Donnell. “If we’re going to do it, do it right.”

Council members Janet Miller and Lavonta Williams voted against the policy.

Miller said the sliding scale was designed “to encourage a variety of sizes of buildings” and giving the same abatement to smaller buildings would take away incentives for developers to build bigger.

Smaller buildings are less risky for developers, Bell said.

Unlike most economic development projects, the speculative buildings won’t have to provide a firm commitment of new jobs to be eligible for tax abatement, since it won’t be clear from the start what businesses will occupy the new facilities.

The initial tax abatement on speculative buildings will run for five years. The abatement can be renewed for a second five years if the building and its tenants meet a sliding scale for capital investment and job creation.

Several members of the public objected to the policy, saying it interferes with free markets in real estate.

Myron Ackerman, who owns development and rental properties, said the new policy uses tax dollars to give an unfair advantage to developers of speculative buildings, over the owners of existing business space who have to pay taxes.

“It’s insane you all think you know how to run a business,” Ackerman told the council.

Bell said after the meeting that the new guidelines will also help owners of existing buildings.

At present, the city allows tax abatement for redeveloping and reoccupying buildings that have been vacant for three years or more, Bell said.

The new guidelines reduce that to two years and also creates criteria for making exceptions for some buildings that haven’t been vacant that long, if the plans are particularly beneficial to the community, Bell said.

By Dion Lefler | Filed under Uncategorized | Comments