The Kansas Legislature has adjourned for the 2018 legislative session after narrowly failing to pass a large tax package on the House floor. Senate Substitute for HB 2228 failed 59-59 (needed 63 votes) on the House floor on Friday, May 4th, after the Kansas Senate passed the measure 21-19. The tax bill had various provisions, including income tax, sales tax, and motor fuel tax. Important to REALTORS® was the provision that would have removed a restriction under current law preventing Kansas individual income taxpayers from itemizing deductions for state income taxes unless they also itemized deductions for federal income tax purposes. Another proposal relative to Kansas itemized deductions would have accelerated restoration of itemized deductions for state income tax purposes. Current Kansas law allows itemized deductions for medical expenses, mortgage interest, and property taxes paid equivalent to 50% percent of the allowable federal amounts in tax year 2018, 75% in tax year 2019, and 100% beginning in tax year 2020. The bill would have accelerated these deductions to 75% of the federal allowable amount beginning in tax year 2018 and 100% beginning in tax year 2019 (Charitable contributions are currently and remain at 100%).
While negotiations were intense leading up to the floor votes, there seemed to be general consensus on at least allowing Kansans to itemized regardless of their federal filing. However, concerns were raised on the overall fiscal note, specifically with how to treat certain foreign income. Earlier in the session it was felt that certain foreign income, now available to be taxed, could be used as revenue to offset the individual deductions and act as a cash windfall to the state. In the last week of the session, uncertainty on just how to treat the foreign income created hurdle that lawmakers perceived as insurmountable.
In failing to pass this legislation a significant number of Kansans, who previously benefited from income tax relief by itemizing deductions on Kansas returns, will no longer be able to do so because they will not itemize at the federal level. The result is another income tax increase, specifically on Kansas homeowners who claimed the mortgage interest and property tax deductions in years past. There are other state interests that stand to gain from the resulting increase in state revenue. Public education, highways, and social services have all been vying for increases in tax dollars and the loss of the deductions serves to protect their budgets or possibly add to them.
Some lawmakers felt that the fiscal impact to the state, both positive and negative, was too uncertain to move forward in 2018. Many legislators feel that 2019 will be the year to restore these deductions after the state has a year to review the implications of federal tax reform passed in late 2017.
KAR will continue to pursue policies that protect private property rights and afford preferential treatment to homeowners. Before the 2019 legislative session, REALTORS® will have a great opportunity to support pro-REALTOR® candidates as all 125 seats of the Kansas House of Representatives are up for election. With more REALTOR® Party Champions in office, we are confident that pro-property owner policies will be successful.
