Editor’s note: This story was updated at 6:15 p.m. April 29.
The House shot down a plan to return some 330,000 Kansas businesses back to the income tax rolls Friday, voting 45-74 on the measure.
A tax conference committee made up of House and Senate negotiators agreed to push the measure forward for a floor vote as the Legislature tries to close a budget gap, adjourn the session and head back to the campaign trail.
Rep. Mark Hutton, a Wichita Republican who joined the conference committee for the specific proposal, has pushed for more than a year to make the business income taxable again. It was exempted in 2012 as part of a tax package Gov. Sam Brownback spearheaded that also included large reductions in individual income tax rates.
Hutton said the latest proposal would be a “structural change” that would restore fairness to the tax code and break the state out of a cycle of low revenue collections and budget deficits.
Rep. Tom Sawyer, the top Democrat on the tax committee, supported the measure.
“This tax plan’s been hurting our state since 2012,” Sawyer said on the House floor before the vote. “I think it’s time we begin to fix this mistake.”
But he and the other tax negotiators admitted that passage would not eliminate the tough decisions the Legislature and Brownback face in fixing the immediate budget crisis, because the business income would not become taxable again until Jan. 1, 2017.
That loomed large for a trio of moderate Republicans — Reps. Lonnie Clark, Susie Swanson and Don Hill — who explained their “no” votes by noting that neither chamber had vetted the bill in committee and it wouldn’t close the budget gap.
The Brownback administration last week outlined three budget-balancing options for legislators that include taking almost $200 million from highway projects and then selling an ongoing tobacco settlement, postponing payments to the public employee retirement fund or making across-the-board spending cuts to state-funded areas, including education and Medicaid.
Brownback has threatened to veto any bill reversing the business tax exemption.
The Kansas Chamber of Commerce, a preeminent lobbying force in the Statehouse, also has opposed any effort to scrap the business tax exemption. Mike O’Neal, president of the Chamber and one of the orchestrators of the tax cut when he was House speaker, said Friday that position remained firm.
Sen. Les Donovan, a Republican from Wichita who chairs the Senate tax committee, said the Senate negotiators only accepted what has become known as the “Hutton plan” for rolling back the tax exemption on the condition that the House vote on it first.
“Our folks are OK with your proposal,” Donovan said. “We know it puts the burden on your shoulders to get it passed.”
An exchange Sawyer had with Donovan during the negotiations previewed concerns some House members had about voting for a tax increase only to see it die in the Senate.
“If the House does pass it, what are its prospects in the Senate?” Sawyer asked.
“We will vote on it,” Donovan replied.
Rep. Stan Frownfelter, a Democrat from Kansas City, asked about both the governor's intentions for the bill and its Senate prospects before casting his “no” vote.
In the end the House vote was a mishmash that defied partisan and ideological labels. Some conservatives like Hutton voted for it, but most did not. Rep. Willie Dove, a Republican from Bonner Springs, said the state’s low unemployment numbers and other positive economic indicators had persuaded him to keep the tax exemption in place.
A group of rural Republicans voted for the bill because, in addition to restoring business income to the tax rolls, it also would make business losses deductible again. They said the agriculture sector has been struggling under low commodity prices.
Rep. Sue Boldra, a Republican from Hays who supported Hutton’s effort to roll back the exemption last year, said some of her House colleagues were pretending to stand on principle in voting against restoring the tax but were truly motivated by personal profit as business owners. She acknowledged the bill’s shortcomings in solving the immediate budget crisis but said it was vital to preserving schools, roads and other services long-term.
“This is enough to give us the opportunity to right our ship of state,” Boldra said.
Earlier in the day, Rep. Marvin Kleeb, a Republican who chairs the House Taxation Committee, said the vote was one the House had to have before campaign season, so some members could vote “yes” and go back and tell their constituents they tried to include the business tax as part of the budget-balancing measures, and others could vote “no” and burnish their pro-business bona fides.
“We need to have that vote on the House floor,” Kleeb said.