No surprise there, one business owner said.
“We have so many kinds of taxes, and they are all high,” said Ken Daniel, chairman of Midway Wholesale Co., a Topeka building materials distributor. He said his 40-year-old company’s tax bill will be in the neighborhood of $150,000 this year.
Daniel can only shrug. He is quite aware of the reality.
“If I had more of those dollars, my business would grow a lot faster, because the only way a small business can grow is with retained earnings,” Daniel said.
John Coleman is founder of Air Ground and Ocean, a 6-year-old freight brokerage firm in Topeka.
He offers a different view.
“Sure, Kansas is probably one of the higher tax states I’ve lived in,” Coleman said.
“But I’ve lived in Ohio, Texas and Pennsylvania, too, and taxes are high everywhere, even in supposedly low-tax states like Texas,” Coleman said. “The difference is what they tax and who pays it.
“What I want the government to do is just give us a level playing field.”
The new study, titled “Location Matters — Business Tax Costs in 50 States,” was released this week by the Tax Foundation, a nonpartisan research and education organization in Washington, D.C., that advocates for lower taxes.
The study notes, “Kansas offers among the most generous property tax abatements and investment tax credits across most firm types, yet these incentives seem to have little impact on the state’s rankings for new operations.”
Derrick Sontag, director of Americans for Prosperity-Kansas, said the practice of government picking winners and losers must come to an end. “When you read a report like this how can one not come to the conclusion that we need to address this problem with aggressive tax reform that provides everyone an opportunity?”
Dave Trabert, president of the Kansas Policy Institute, told KansasWatchdog that, “Incentives are what one offers (whether a business or a government) when one is not competitive.”
Kansas businesses that are 3 or fewer years old pay the third-highest total taxes in the nation among all 50 states and Washington, D.C., the study found. Older businesses, such as Midway Wholesale, pay the fourth-highest totals.
The findings contrast sharply with previous surveys, including some by the Tax Foundation, that put Kansas closer to the midpoint in regard to tax burden. As recently as January, for example, the foundation released its latest compilation of its Business Tax Climate Index, which put Kansas almost dead center — in 25th place — among lightest- to heaviest-taxed states.
“Those surveys focus on tax policies, such as what types of taxes do states have or what are their tax rates,” said Scott Hodge, the foundation’s president. “This new study looks at the issue from a business’ viewpoint and what they actually pay.”
“We found that it is like buying a car,” Hodge said. “No one ends up paying the same price because tax rates, incentives and other policy decisions are different everywhere.”
Trabert said it’s important to account for local tax policy. “Local governments are a huge problem in economic development because their spending in Kansas is growing much faster than population and inflation – and also much faster than state spending.”
According to Trabert property tax collections in Wichita increased 95% between 1997 and 2010, far faster than inflation, 33 percent, and population, 16 percent. “Last year the City of Mission implemented a Driveway Tax because they ‘needed more money,'” Trabert said. “They increased taxes by 96 percent and total revenue was up 103% between 2000 and 2009, while population actually declined 1.5 percent.”
The Location Matters survey gauged the impact of things such as corporate income and property taxes businesses pay, franchise taxes, depreciation allowances and premiums paid to finance state unemployment benefits.
“What’s scary is that we come in 47th and 48th,” said Dan Murray, director of the Kansas chapter of the National Federation of Independent Business, which advocates for small businesses.
“If those are the factors that site selection folks are looking at, Kansas isn’t looking so good,” Murray said.
Those are indeed the factors site selectors review, and the findings are significant, said Pete Sepp, executive vice president of the National Taxpayers Union, the nation’s oldest grassroots tax policy advocacy group, in Washington, D.C.
“The foundation considered 100 variables, which is significant because those reflect the complexities business face when choosing whether to expand or where to locate,” Sepp said. “Federal regulation already is so top heavy that the last thing a business wants to do is move to a state where additional burdens will increase.”
The study shows Kansas faces increasing competition from neighbors Colorado, Nebraska, Missouri and Oklahoma, as well as Iowa. When compared with Kansas, those states have lower business tax loads, Sepp said.
“The race for economic progress already has begun,” he said.
And Kansas is already behind.
The Tax Foundation report “is bad news for our state and makes the urgent need for tax reform crystal clear,” said House Speaker Mike O’Neal, R- Hutchinson.
Kansas legislators this session are deciding which of three potential tax policies to enter in the race.
One is a proposal by Republican Gov. Sam Brownback to reduce and eventually eliminate state income taxes, along with a slew of both specific business taxes, and many personal tax deductions and exemptions for individuals.
Kansas House Republicans are proposing an alternative to the governor’s plan designed to cut and eliminate income taxes more slowly, preserve more individual deductions, and allow an already scheduled reduction in state sales taxes.
House Democrats and their allies in the Kansas Senate propose to use $90 million of an expected $350 million cushion in projected state revenue to provide property tax relief for home and business owners.
Both Murray, the small business advocate, and Daniel, the small business owner, say they want legislators to pass a proposal — which in both the House Republican and Brownback plans — that eliminates taxes on investments, royalties and other non-wage business income that small business owners now pay along with their other personal income taxes.
Simply put, the move would be a bigger boon to many Kansas small business owners than earned income tax credits and sales tax reductions, Daniel said.
“Basically, it’s an injection of capital into the businesses that produce 75 percent of the jobs in our state,” Murray said.
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KansasWatchdog reporter Paul Soutar contributed to this report.