Brief⁽¹⁾

H.B. 2249 would enact the Kansas Education and Tax Reform Act of 1998, which contains a number of inheritance, property, sales, income, severance, premiums, and privilege tax cuts and make several school finance formula changes.

Inheritance Tax Repealed

The Kansas Inheritance Tax Act would be repealed and replaced with the Kansas Estate Tax Act, effective for the estates of all decedents dying after June 30, 1998.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 $2,300 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.

Tax Credits for Machinery and Equipment Property Taxes Paid

Another section of the bill would provide, beginning with liability for property tax year 1998, refundable income, premium, and privilege tax credits equivalent to 15 percent of timely 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 credit would be applicable to taxpayers filing under subchapter S status, partnerships, and limited liability companies.

School Finance Property Tax Provisions

The bill would set the mandatory school district general fund property tax levy for the 1998-99 and 1999-2000 school years at 23 mills. The current levy is 27 mills. 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).

Oil Severance Tax Exemptions Expanded

The average daily production below which oil severance tax exemptions apply would be expanded to include wells of all depths, including those using tertiary-recovery and water-flood processes.

Sales Tax Exemptions

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."

An exemption would be granted for all purchases of 501 (c)(3) religious organizations, provided the tangible personal property and services are used exclusively for religious purposes.

Another exemption would be provided for all sales by or on behalf of not-for-profit organizations providing nonsectarian comprehensive multi-discipline youth development programs.

Standard Deduction Amounts Increased

The Kansas standard deductions for individual income taxpayers would be increased beginning in tax year 1998, as follows:

The school finance formula amendments (described below) take effect beginning with the 1998-99 school year. The appropriation is for FY 1999. A summary of the main provisions follows:

Base State Aid Per Pupil (BSAPP) Increased

BSAPP is increased by $41--from $3,670 to $3,711.

Correlation Weight Applied to Lower

Enrollment Districts

Correlation weight is applied to all school districts having enrollments of 1,765 and over. (This weight currently applies to all school districts with enrollments of 1,800 and over.)

At-Risk Pupil Weight Increased

The at-risk pupil weight is increased from 6.5 percent to 8.0 percent of BSAPP.

State Aid Per Pupil (New)--Provided

to Certain School Districts

An amount equal to $19 per full-time equivalent pupil is distributed to all school districts having enrollments of 1,200 to 1,764.

Background

The House version of H.B. 2249, passed during the 1997 Session, dealt with various income tax credits. The Senate Assessment and Taxation Committee removed all House language and inserted the provisions contained herein. An amendment of the Senate Committee of the Whole removed an item of appropriation that had been added by the Senate Assessment and Taxation Committee.

The bill would reduce receipts as follows:

The amendments contained in H.B. 2249, in effect, replace the provisions of S.B. 447 which, as introduced, contained the Governor's school finance recommendations except for the proposal to reduce the uniform property tax rate from 27 mills to 23 mills.

The following table contains a comparison of selected provisions of current law, the Governor's proposal, the Senate Education Committee's plan, the Senate Assessment and Taxation Committee's plan, and the Senate passed version.

Shown below is a comparison of the estimated increased cost to the State General Fund (SGF) in FY 1999 of the Governor's plan, the Senate Education Committee's plan, and the Senate Assessment and Taxation Committee's plan.

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.