“We are like people with a short-term leases on summer cottages; we can never seem to make our provisions come out even with our stay.” Mignon McLaughlin, The Neurotics Notebook, 1960
As we enter the new Fiscal year 2011 this next July 1, many questions remain about the sources; where the expected/required money will come from and at what cost to the economy as a whole. The approved budget has assumed a 4% growth in the economy and additional Federal ARRA $138 million for Medicaid.
The one cent sales tax has been touted as the savior and is expected to generate around $300 million to be spent on government operations, most of which will go to K-12 education. The tax was placed into play with the mantra that all taxpayers will be affected equally and that some out of state travelers will also contribute.
The 3-year sunset requirement for the elimination of the tax helped with its acceptance, time will tell how this works. The fundraising efforts by Wichita that used a 1-cent sales tax to fund the construction of the Intrust Arena is a great example of what a temporary tax can accomplish.
The big difference being is that tax was levied and not until the revenue was in the bank did construction begin. The required level of money was raised, then as promised the tax was removed. The new increase in the statewide sales tax is to generate funds for previous commitments, if sufficient money is not raised; I am not sure what will happen.
The state needs to look at our overall tax policy and many believe we should start with property tax. All property is placed into two classes-real property (land and buildings) or personal property (e.g. boats, cars, household belongings).
The Kansas Constitution requires certain property to be exempt from taxation, and allows the Legislature and local government to exempt additional property. The number of classifications of property tax exemptions in Kansas has increased from 42 in 1985 to 100 exemptions currently.
Many property tax exemptions were created or expanded in recent years, including seven in 1992, five in 2001, and 21 exemptions between 2005 and 2007, many of which are business related.
A rise in the number of property exemptions can shift the tax burden to a smaller group of taxpayers. Tax revenues based on residential real estate have grown faster than any other major property category. In 2008, tax revenues from residences made up 47% of all property tax revenues (up from 38% in 1994).
According to the U.S. Census Bureau data, local governments in Kansas derive roughly 76% of their tax revenue from property taxes.
Legislative Post Audit has identified a number of property tax exemptions the Legislature may want to re-evaluate because the tax exemptions are broader than the Constitution requires. These include:
- Parsonages,
- Household goods and personal effects,
- Non-profit community housing development organizations,
- Non-profit community services organizations,
- Certain buildings owned by private non-profit universities or colleges,
- Property used by alumni organizations
The Post Auditors also discovered four property tax exemptions that provide unequal treatment for similar type of taxpayers.
- An exemption for farm structures used to store hay, but not for other structures used to store inventory, products and other goods.
- An exemption for aircraft that are used to generate income, but not for other forms of transportation used to create income such as taxicabs or delivery trucks.
- An exemption for antique aircraft, but not other antique property such as cars.
- An exemption for low oil production implemented in 1992, to subsidize those businesses when oil prices were at a record low.
Several property tax exemptions for machinery and equipment that were enacted in 2006 have eroded the local tax base. These exemptions were expected to cost counties more than $400 million in property taxes over the first five years. The actual costs were much less at $5 million in 2008 and the exemption expense is expected to climb to $19 million in 2012.
The loss of Machine and Equipment (M&E) tax revenue was offset when jobs were saved and factory expansion was conducted to facilitate increased production. One shining example is the GM Fairfax plant in Kansas City where instead of closing the plant they had a $136 million major renovation. This led to adding a third shift of approximately 1,050 jobs. The total employment is just over 3,800.
Fairfax will become the primary source for the next generation of the Chevrolet Malibu. The Malibu related investments will include facilities, machinery and equipment. Those income tax and sales tax dollars contributed by those affected workers is estimated in the hundreds of millions of dollars.
Some useful websites, http://kslegislature.org/postaudit, Legislative Post Audit reports are available on line
www.kssos.org, Secretary of State Office, www.kdheks.org, Department of Health and Environment,
www.ksrevenue.org, Department of Revenue,
I consider it an honor and privilege to be your representative in Topeka and I want to know what you think.
My Topeka office is closed until January 11th, 2011, you can reach me at home 1115 Rim Rock Road, El Dorado, 67042, or 316-321-2087, email johng@carlisleinc.net, www.johngrange.net.
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