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Minutes for HB2421 - Committee on Taxation
Short Title
Providing income tax modifications for global intangible low-taxed income, business interest, capital contributions, FDIC premiums, business meals and payment protection program loans and expenses; expanding the expense deduction availability to income tax taxpayers and calculating the deduction amount; allowing an individual to itemize deductions in Kansas despite not itemizing on their federal return; and exempting from income compensation attributable to unemployment insurance ID fraud.
Minutes Content for Wed, Mar 17, 2021
Chairperson Adam Smith opened the hearing on HB2421.
Adam Siebers, Assistant Revisor provided an overview on HB2421 that provides for several income tax changes. The changes would include a modification for determining Kansas income, the election for Kansas itemized deductions, expanding the eligibility for expensing deduction and amending the calculation, and the exemption of unemployment compensation income as a result of identify fraud. (Attachment 1)
Kathleen Smith, Kansas Department of Revenue provided the fiscal note for HB2421 indicating it would decrease the State General Fund revenues by a minimum of $118.8 million in FY 2022, $125.6 million in FY 2023, and $130.5 million in FY 2024. To obtain the estimates, many of the provisions are due to changes that were made in the Tax Cuts and Jobs Act of 2017; therefore, the Department reviewed information from the federal Joint Commission on Taxation to estimate the impact of all federal tax policy changes in Kansas. Estimates for Disallowed Business Interest, GILTI, Capital Contributions, and FDIC are based upon the Joint Committee on Taxation estimates from the Tax Cuts and Jobs Act. Under the Consolidated Appropriations Act of 2021 there was a change made regarding disallowed meal expenditures so the Department based their estimate for Kansas on the Joint Committee on Taxation estimate. For itemized deductions, a simulation based on 2017 tax returns was used to determine what the impact would be due to the standard deduction increased at the Federal level for tax year 2018 and forward. Ms. Smith pointed out there may be questions with regard to GILTI income on Page 10 of HB2421 noting it does say individuals will be able to subtract out their GILTI income before any deductions; whereas, corporations are taking their income and subtracting out the deductions on the Kansas tax return. Individuals that have GILTI income would be able to subtract out the entire amount of the GILTI income before any deductions. HB2421 would allow the amount received from the federal Paycheck Protection Program (PPP) under the CARES Act only to be subtracted from income for Kansas income tax purposes beginning retroactively in tax year 2020; this only includes the CARES Act PPP loans and does not include the consolidated appropriations act PPP loans.
Ms. Smith stood for questions from Committee members.
Proponents:
Eric Stafford, Kansas Chamber of Commerce testified as a proponent for HB2421 noting the provisions of the bill addresses conformity related to the Tax Cuts and Jobs Act of 2017 and created to help pay for the reduction in the corporate income tax rate. HB2421 proposes to decouple from the following items starting next tax year: (Attachment 2)
- IRC 951A, 250(a)(1)(B)(i) or GILTI. The GILTI inclusion taxes foreign earnings in excess of 10% rate of return on fixed assets at a reduced rate by providing a 50% deduction. The calculation is complex for businesses when determining the property apportionment to determine how much of foreign income should be payable to Kansas. Kansas is one of six states that taxes GILTI.
- IRC section 163(j) on interest limitation deductions. The Tax Cuts and Jobs Act modified IRC 163(j) to limit deductibility of business interest expenses.
- IRC 118 Capital contributions and IRC 162(r) FDIC premiums. The Tax Cuts and Jobs Act included a modification to IRC 118 to tax contributions by government entities and civic groups to corporations. The Tax Cuts and Jobs Act precluded deductions of FDIC premiums paid by financial institutions to raise revenue to offset rate reductions.
Elizabeth Patton, Americans for Prosperity-Kansas testified as a proponent for HB2421 and SB22 stating to prosper post-pandemic, we should enhance rather then to continue to undermine the benefit of the federal tax reform. The Tax Cuts and Jobs Act of 2017 provided federal tax relief for Americans across the country; however because of the way that the Kansas state tax code is currently structured, many have seen unintended state-level tax increases. HB2421 would return an estimated $150 million to Kansas taxpayers which would enhance, rather than undermine, the benefits of federal tax reform in Kansas. (Attachment 3)
Mark Tomb, Kansas Association of Realtors testified as a proponent for HB2421 and SB22 noting the itemize deduction included in Section 3 of both bills would provide Kansans with a long overdue ability to take state level itemized deductions regardless of whether they take the standard or itemized deduction on their federal tax returns. The change at the federal level resulted in a tax windfall at the state level and a tax increase which was not voted on by the legislature. (Attachment 4)
Alex Orel, Kansas Bankers Association testified as a proponent for HB2421 but spoke specifically about 162(r) that excluded the deduction of FDIC premiums paid by banks, savings and loan associations to insure each depositor's accounts up to $250,000 in the event of a failure. This is a business expense to insure each depositor's money and Kansas should reinstate full deductibility of this cost to all financial institutions. (Attachment 5)
Mr. Stafford, Ms. Patton, Mr. Tomb and Mr. Orel stood for questions from Committee members.
Don Brown, Cargill, Inc. submitted written testimony as a proponent to HB2421. (Attachment 6)
Opponents:
Sister therese Bangert, Sisters of Charity of Leavenworth testified as an opponent of HB2421 stating the need for policies that build-up the citizens of Kansas while making the tax system as fair as possible. She urged Committee members to not give away resources that will continue to give choices for among others the school children and retirees of Kansas. (Attachment 7)
Michael Poppa, Mainstream Coalition testified as an opponent to HB2421 and SB22 as a return to irresponsible tax policies of the past at a time when the State has not recovered from those policies. Kansans need considerable help from the State during the recovery period after the pandemic subsides and HB2421 would compromise the State's ability to provide assistance. (Attachment 8)
Emily Fetsch, Kansas Action for Children testified as an opponent to HB2421 indicating the support for budget and tax policy that prioritizes investing in children and families, particularly among those with low incomes. She noted the Institute on Tax and Economic Policy shows that one in ten taxpayers (12%) in the bottom 80% of the income distribution would benefit from the bill. The bill would not reduce tax liability of low and moderate income taxpayers, instead it would favor higher income Kansans. (Attachment 9)
Michael Mazerov, Center on Budget & Policy Priorities testified as an opponent to HB2421 and SB22 indicating Kansas's conformity to the Global Intangible Low-Taxes Income (GILTI) provision of the Tax Cuts and Jobs Act and the Paycheck Protection Program (PPP) provisions of the CARES Act would be fiscally irresponsible to move forward with the two bills. He noted the bills go in the opposite direction of what the state should be doing; it should remain fully coupled to the GILTI minimum tax, and should decouple from the recently expanded federal tax break for forgiven PPP loans for larger borrowers. (Attachment 10)
Haley Kottler, Kansas Appleseed Center for Law & Justice testified as an opponent to HB2421 noting this bill proposes a large new tax experiment that Kansas cannot afford. The main beneficiaries from HB2421 are those who own large corporations that do global business and have large business interest expenses and expense accounts. Giving away big tax breaks to global corporations does not help Kansans who are needing help during this pandemic crisis. (Attachment 11)
Sean Gatewood, KanCare Advocates Network testified as an opponent to HB2421 noting the concern because of potential cuts to critical Medicaid related services putting Kansas children and families at risk. Maintaining adequate funding for the Medicaid program is a priority for the KanCare Advocates Network. (Attachment 12)
Conferees stood for questions from Committee members.
Written testimony as opponents to HB2421 was submitted by the following:
Adam Proffitt, Director of the Budget (Attachment 13)
Patty Logan, Stand-up Blue Valley Families for Our Schools (Attachment 14)
Audrey Schemmer, Kansas Association for Independent Living (Attachment 15)
Rabbi Moti Rieber, Kansas Interfaith Action (Attachment 16)
Barb Helm, Arcare, Inc. (Attachment 17)
Darien Shanske, UC Davis School of Law (Attachment 18)
Chairperson Smith closed the hearing on HB2421.
