Archive for Thursday, January 26, 2006

Issue to tax lawmakers

Views differ on eliminating property tax on new business machinery

January 26, 2006

Leavenworth County commissioners want Gov. Kathleen Sebelius to back off from her proposal to eliminate property tax on new business machinery and equipment.

This was one of the goals Sebelius mentioned in her Jan. 9 State of the State address.

Rep. Kenny Wilk, R-Lansing, chairs the House Taxation Committee, which is working on the bill.

Wilk said he thought the proposal would make Kansas more competitive in the national and international market.

"I feel strongly abut this because a lot of states don't charge this tax, and, certainly, a lot of our foreign competitors don't," Wilk said. "It's another way to try to help the Kansas worker be more competitive in the global marketplace."

Dean Oroke, chairman of the County Commission, said commissioners were concerned about the loss of revenue the proposal would mean to Leavenworth County. Oroke said the county received about $4 million a year from taxes on business equipment.

And according to Wilk, in 2005, the business equipment and machinery property tax generated about $215 million statewide.

That's why commissioners last week sent a letter to Sebelius, asking her to reconsider.

"We're going to try to keep the Legislature educated to the point of what the effects would be on Leavenworth County," said Oroke. "Because it's definitely a shifting of taxes, unless the state has some other means to supplement our revenue."

The commissioners' letter said, in part:

"Exempting business machinery and equipment from taxation would significantly erode our local tax base resulting in either financially crippling the county or forcing a mill levy increase. Roads must be maintained, bridges must be erected and law enforcement protection must remain in force. In short, the operating of the county will not decrease. The tax dollars that are lost from the exemption to businesses such as Hallmark, Wal-Mart, Applebee's, etc. will be assumed by homeowners, young newlyweds, old retired couples, widows and all of us in between. The tax burden will shift to those who can least afford it."

Keep jobs in state

But not everyone in the county is likely to agree with the commissioners.

For instance, Magnatech Engineering's owner Bill Graveman supports the governor's plan, which he believes would help manufacturers.

Magnatech manufactures equipment for the recycling industries, primarily to use in recycling ferrous and nonferrous scrap.

"My opinion is that the residents of the state of Kansas face a real problem with the consolidations and reductions in the manufacturing sector of our work force," Graveman said. "Losing a few jobs here and there may not sound like a big deal, but the manufacturing jobs that are lost typically represent the highest wage rates available to any worker. Losing manufacturing jobs in a small Kansas town is especially damaging because there are not many alternatives in small towns to replace lost manufacturing wages. This has a very real impact on families and entire communities."

It's important to keep manufacturing jobs in the state, Graveman said.

"Unless Governor Sebelius and the Legislature find a way to keep manufacturing jobs in the state and make the existing ones stronger, the only work available for many people will be at places like a Wal-Mart or McDonald's. We will all be poorer if this is the case," Graveman said.

How it would work

Here's how the business equipment and machinery tax has been applied, according to Wilk.

"If I pay $1,000 in business machinery and equipment property tax, I get the equivalent of a 20 percent rebate that I can apply to my state income tax," Wilk said. "That's going up to 25 percent this year."

If Sebelius' goal turns into law as Wilk hopes it does, Wilk said, the new law only would apply to new or used business equipment and machinery purchased after Jan. 1, 2007.

The older equipment - purchased before Jan. 1, 2007 - would continue to be taxed as it has been under the existing law. And, Wilk noted, the new equipment and machinery would be qualify for the credit on the state income tax.

New business startups

Lynn McClure, executive director of Leavenworth Area Development, says that ending the business machinery and equipment tax will make it easier to start new businesses.

"Obviously, anything that helps businesses get established and takes less money out of their pocket is a great thing," McClure said.

If it stays in effect, the business machinery tax could steer new businesses into other states.

"This is one of those things that, especially on the eastern side of Kansas, is going to be a big player," McClure said. "I would anticipate we'll see less state-jumping because of things like this. And I would hope this would not be the end of looking for ways to keep being competitive."

McClure said he understood county commissioners' stance.

"Obviously the public sector's going to have some concern with losing a revenue source," McClure said. "But in the private sector, the businessperson is saying, thank you, thank you for making it easier for me to do business."

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