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Minutes for HB2186 - Committee on Taxation

Short Title

Allowing single sales factor apportionment of business income for certain taxpayers.

Minutes Content for Tue, Feb 8, 2022

Chairperson Smith opened the hearing on HB2186.

Adam Siebers, Assistant Revisor provided an overview on HB2186  that would allow a taxpayer to elect a portion of income based on the sales factor alone rather than the current three-factor apportionment election and would be available to only businesses engaged in manufacturing production of electricity or storage of electricity in certain agricultural activities.  Taxpayers would be eligible to choose the election for apportionment by including a statement on their tax return.  The election will be available for ten years, will be in effect for ten years, and will be binding on a unitary group of corporations.  The Secretary of Revenue may shorten the duration on the remaining years of the election as approved by the Secretary.  Mr. Siebers stood for questions from Committee members.

In response to a Committee question, Mr. Siebers stated the Secretary of Revenue can terminate the election so it would go back to the normal 3-factor apportionment election instead of a single factor.  There would be a 10-year period but the Secretary of Revenue can terminate that with an agreement with the company and go back to the 3-factor.  He noted this is something that is not automatic but optional per company whether they want an election to keep the current 3- factor or go to the single factor. 

Kathleen Smith, Kansas Department of Revenue, provided an overview on HB2186 stating the fiscal note was prepared in FY2021 and estimated that the State General Fund would decrease by around $20.5 million in FY2022.  The Department indicates that similar results would also occur in future fiscal years.  She noted to formulate these estimates, the Department of Revenue reviewed data on the apportionment of business income from the top 600 businesses that have at 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 stood for questions from Committee members.

Proponents:

Eric Stafford, Kansas Chamber testified as a proponent on HB2186 stating our Vision 2025 program is focused on what can be done to help grow the state at a faster economic rate than what has been done over the last few decades.  He noted within in his testimony is a proposed amendment to add two more codes based on member feedback.  (Attachment 2)  Mr. Stafford stood for question from Committee members.

Written testimony as proponents for HB2186 was submitted by the following:

Erin Brower, Hallmark Cards, Inc. (requesting to add NAICS code 424100 Wholesale trade to HB2186) (Attachment 3)

Kevin Walker, Overland Park Chamber, (Attachment 4)

Randy Stookey, Kansas Grain and Feed Association, (Attachment 5)

Don Brown, Cargill, (Attachment 6)

Michele Wheeler, NextEra Energy Resources, (Attachment 7)

Jason Watkins, Wichita Regional Chamber of Commerce, (Attachment 8)

Opponent:

Emily Fetsch, Kansas Action for Children, testified as an opponent for HB2186 stating the following three primary reasons:  the bill picks favorites, creates loopholes, and fails to ensure that the bill will fulfill its purposes.  She noted the change to the single sales factor formula would pick business favorites, the single sales factor formula would disproportionately favor businesses that have property and employees in Kansas but little sales.   The current three-factor apportionment formula balances property sales and payroll in the state and ensures that corporations working in multiple states are supporting the state services from which they benefit by just using the single sales factor. (Attachment 9)  Ms. Fetsch stood for Committee questions.

Chairperson Smith closed the hearing on HB2186.