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Minutes for HB2796 - Committee on Taxation
Short Title
Providing for the apportionment of business income by the single sales factor and requiring the use of single sales factor pursuant to the multistate tax compact.
Minutes Content for Wed, Mar 6, 2024
Chairperson Smith opened the hearing for HB2796.
Adam Siebers, Assistant Revisor, provided an overview for HB2796 stating the bill would apportion business income for taxpayers by multiplying the business income by the sales factor. (Attachment 1) Mr. Siebers stood for the questions from Committee members.
Kathleen Smith, Kansas Department of Revenue, provided an overview on the fiscal note for HB2796 that would increase the State General Fund Revenues by $1.2 million in FY2025, $3.8 million in both FY2026 and FY2027. To formulate the estimates, KDOR reviewed corporate income tax returns from tax year 2021. Tax liability for companies in multiple states were estimated using their current three factor values converted to a single sales factor, resulted in an increase in corporate income tax collections of $10.4 million in tax year 2025. Ms. Smith stated for the market-based sourcing, KDOR estimated based on similar legislation proposed in other states, the provision would decrease corporate income tax collections by $6.5 million for FY2025. Ms. Smith stood for questions from Committee members.
In response to a question, Ms. Smith will provide information to the Committee regarding the top 25 companies and the impact HB2796 would have regarding the maximum increase they would receive versus a decrease to get a better understanding of how this bill may affect individual businesses.
Proponents:
Michael Hale, Kansas Department of Revenue, testified as a proponent for HB2796 that accomplishes apportioning corporations' income so Kansas is using only a sales factor. He noted it sources the sales made by corporations to where the service or property is received and ensures that the Kansas Income Tax Act and the Multi-State Tax compact apply uniformly to corporate income tax. The purpose of using an apportionment formula is to allocate to each state its fair share of the total business income of the corporation. Mr. Hale provided a map in his testimony that shows the vast majority of states that have moved away from the three-factor formula and now use a formula that is sales factor based. The legislation would align Kansas with most states in how it apportions and sources sales for purposes of calculation corporate income tax. The fiscal impact of the proposed legislation would likely trend toward being nearly neutral. (Attachment 2) Mr. Hale stood for questions from Committee members.
Neutral:
Eric Stafford, Kansas Chamber, testified as neutral for HB2796 that would move Kansas to a single-factor apportionment state for corporate income tax purposes noting the Kansas Chamber's membership are divided over this issue. Switching to a single-factor apportionment means there will be winners and losers. Some will experience a reduction in tax liability, while others will see an increase. HB2796 does not reflect any provisions suggested by the Kansas Chamber task force, therefore the reason they are neutral to the bill. A request was made to adopt language found in HB2798 which was introduced to reflect the requests from the Kansas Chamber members. (Attachment 3) Mr. Stafford stood for questions from Committee members.
Written only neutral testimony was submitted by Sean Miller, Anheuser-Busch, (Attachment 4)
Chairperson Smith advised the Committee there were no opponents for HB2796.
Chairperson Smith closed the hearing for HB2796.
