Brief⁽¹⁾

S.B. 44, as amended by the House Committee of the Whole, would enact four new income tax credits for all years beginning with tax year 1998. The bill also would allow taxpayers to establish education savings accounts and would amend a statute to require certain adjustments to income by other state tax agencies be reported to the Department of Revenue.

Income Tax Credits

1. Individuals certificated to instruct and educate K-12 students in accredited schools would be able to claim refundable credits of up to $125 for expenditures associated with the costs of equipment, materials, or other teaching aids for use in the classroom. Individuals claiming such credits could not also claim deductions pursuant to K.S.A. 79-32,117.



2. Individuals with dependents attending certain elementary or secondary schools in Kansas would be able to claim refundable credits for certain education expenses exclusive of tuition. The schools would have to adhere to the provisions of the federal Civil Rights Act of 1964 and the Kansas Act Against Discrimination and be able to satisfy the attendance requirements of K.S.A. 72-1111. The credit would be equal to 25 percent of amounts paid for education expenses in excess of $250, but in no case could the amount of credit claimed exceed $300.

1. Members of agricultural cooperatives could claim a credit equal to 10 percent of direct investments in the entities, except that a credit could not exceed $500 in any taxable year. Although the credits would be nonrefundable, they could be carried forward for up to four years.



2. Certain individuals could receive refundable credits (of up to $500 per dependent) equal to amounts paid for tuition, textbooks, and fees at Kansas public postsecondary institutions and Kansas accredited independent colleges and universities. The credits would not be available to married taxpayers filing jointly with Kansas Adjusted Gross Income (KAGI) of more than $80,000 and to other filers with KAGI of more than $40,000.

Education Savings Accounts

Taxpayers would be allowed to establish postsecondary education savings accounts beginning in tax year 1998 and deposit up to $2,000 for the account holder and up to $1,000 for each dependent child of the account holder, except that there would be no limit on deposits from earned income of a dependent child who is a recipient of Aid to Families with Dependent Children. All income earned on postsecondary education savings accounts would be exempt from the Kansas income tax. Taxpayers also would be allowed to subtract from their adjusted gross income the first $2,000 of contributions to such accounts for all tax years beginning in 1998.

Adjustments to Income

Another provision would amend K.S.A. 79-3230 to require taxpayers to report adjustments to income made by other state tax agencies. (Current law requires such adjustments to be reported only when they have been made by the IRS.)

Background

S.B. 44, as amended by the Senate Assessment and Taxation Committee and adopted by the Senate in 1997, would have exempted remodeling labor services from the sales tax. The House Committee removed the sales tax provision and inserted the income tax credit provisions described in (1), (2), and (3), above.

The House Committee of the Whole added the provisions relating to income tax credits for tuition, textbooks, and fees; education savings accounts; and adjustments to income.

The income tax credits described in (1) and (2) above are similar to provisions contained in H.B. 2755 by Representative Landwehr and others, except that the amount of both credits has been changed and tuition expenses have been specifically excluded from the education expenses credit. An oral fiscal note presented in Committee by the Department of Revenue indicated a reduction in State General Fund receipts attributable to the provisions of the credits described in (1) and (2) above of approximately $5 million to $6 million. Subsequent information provided by the Department suggested the fiscal note for out-of-pocket expenses of teachers would be $4.1 million and the fiscal note for the education expenses credit would be $1.2 million.

The Department of Revenue believes the income tax credits described in (4) above would reduce State General Fund receipts by $45 million. The education savings accounts provision, recommended by the Governor, would reduce FY 1999 receipts by $1.4 million and FY 2000 receipts by $2.0 million.

The credit for investments in agricultural cooperatives is similar to H.B. 2481, with the changes suggested by proponents. The fiscal note for credits attributable to such investments is indeterminate.

The total FY 1999 fiscal note for the provisions with identifiable impacts would be a reduction in receipts of $51.7 million.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.