S.B. 500, the Kansas Tax Reduction and Reform Act of 1998, would enact a number of inheritance, property, sales, income, and privilege tax cuts.
Inheritance Tax Repealed
The Kansas Inheritance Tax Act would be repealed and replaced with the Kansas Estate Tax Act, effective for the estates of all decedents dying after June 30, 1998. The "pick up" estate tax would be an amount equal to the maximum credit allowed by Section 2011 of the Internal Revenue Code against the tax that otherwise would be imposed on the transfer of the taxable estate of the decedent, multiplied by a fraction, the numerator of which is the Kansas gross estate value and the denominator of which is the total gross estate value.
Under such a pick-up estate tax which would piggyback on the federal estate tax, estates with a value of $625,000 during the second half of 1998 would incur no liability (with this amount increasing to $1 million in 2006 pursuant to the 1997 federal law change). An additional provision enacted in 1997 allows family-owned farms and businesses an exclusion of $1.3 million (an additional $675,000 in 1998, for example) if the farm or business is at least 50 percent of the estate and the heirs materially participate in the business for at least ten years after the decedent's death.
Under current law, Kansas computes both the pick-up tax and the inheritance tax and levies whichever liability is greater. The inheritance tax totally exempts surviving spouses, gives Class A distributees (generally lineal ascendants and descendants) a $30,000 exemption, and gives Class B distributees (brothers and sisters) a $5,000 exemption.
Singles' Income Tax Cuts
Individual income tax reductions enacted in 1997 for single filers would be accelerated such that the fully phased-in rates currently scheduled to apply in tax year 2000 would be applicable in tax year 1998. The effect of this acceleration would be tax cuts in both tax years 1998 and 1999 relative to current law.
Personal Exemption Increases
The individual income tax personal exemptions would be increased from $2,000 to $2,350 beginning in tax year 1998. The current $2,000 level is tied to what the federal personal exemption amount was in the late 1980s. Pursuant to indexation, the current federal personal exemption amount for tax year 1998 will be $2,700.
Income and Privilege Tax Credits for Property Taxes Paid
New Section 20 would provide, beginning in tax year 1998, refundable income and privilege tax credits equivalent to 15 percent of property taxes paid on commercial and industrial machinery and equipment (including such property owned by not-for-profit entities) and machinery and equipment assessed under the mineral leasehold interest subclass. The Senate Committee amendment to this section would clarify that the credit would be applicable to taxpayers filing under subchapter S status, partnerships, and limited liability companies.
School Finance Property Tax Provisions
The bill would reduce the mandatory school district general fund property tax levy for the 1998-99 school year from 27 to 23 mills and would set a levy of 23 mills for the 1999-2000 school year. The $20,000 exemption from the levy for residential property also would be extended through tax year 1999.
Property Tax Exemption for Oil Leases
The property tax exemption in K.S.A. 79-201t for oil leases (other than royalty interests) would be expanded such that wells with a completion depth of less than 2,000 feet and an average daily production of three barrels or less would be exempt (up from two barrels per day under current law), and wells with a completion depth of 2,000 feet or more and an average daily production of five barrels or less would be exempt (up from three barrels per day under current law).
Severance Tax Exemptions for Oil Expanded
The average daily production below which severance tax exemptions apply would be expanded to include wells of all depths, including those using tertiary-recovery and water-flood processes.
Residential Remodeling Sales Tax Exemption
Labor services associated with the reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence would be exempt from the sales tax. "Residence" would be defined as "only those enclosures within which individuals customarily live."
The inheritance tax, singles' income tax, machinery and equipment tax credits for property taxes paid, school finance property tax, and severance and property tax on oil provisions are identical to those recommended by the Governor.
The Governor had recommended a $100 increase in personal exemptions and had not in 1998 recommended the residential remodeling sales tax exemption (though he recommended an exemption for all remodeling labor services to the 1997 Legislature).
Other parts of the Governor's 1998 tax recommendations which are not included in S.B. 500 are various individual income tax standard deduction increases; an earned income tax credit proposal; a provision relating to education savings accounts; expansion of the food sales tax rebate program; and a number of sales tax exemptions.
The bill would reduce receipts as follows:
|($ in millions)|
|Accelerate singles' income tax cuts||$23.000||$7.900||---||---||---|
|Mill levy cut 27 to 23 mills (local effort)||$40.300||$68.900||$71.900||$74.600||$77.400|
|Bus mach. and equip. income tax credit||$23.500||$25.800||$28.400||$31.200||$34.300|
|Pick-up estate tax||$23.100||$54.600||$57.300||$60.200||$63.200|
|Personal exemption increase||$50.500||$40.100||$41.400||$42.800||$44.100|
|Oil severance tax exemptions (SGF only)||$1.415||$1.415||$1.415||$1.415||$1.415|
|Oil severance tax exemptions (local effort)||$0.053||$0.053||$0.053||$0.053||$0.053|
|Oil property tax exemptions (local effort)||$0.197||$0.327||$0.327||$0.327||$0.327|
|Resdl. remodeling sales tax exemption||$13.744||$15.594||$16.217||$16.866||$17.541|
|Local Effort Reduction -- Mill Levy||$40.300||$68.900||$71.900||$74.600||$77.400|
|Local Effort Reduction -- Oil Property Tax||$0.197||$0.327||$0.327||$0.327||$0.327|
|Local Effort Reduction -- Severance Tax||$0.053||$0.053||$0.053||$0.053||$0.053|
|TOTAL SGF IMPLICATIONS||$175.809||$214.689||$217.012||$227.461||$238.336|
|CMPTF Receipts (Counties Only)||$0.053||$0.053||$0.053||$0.053||$0.053|
|TOTAL REVENUE IMPLICATIONS||$176.601||$215.580||$217.937||$228.421||$239.332|