A new report produced by the Kansas Chamber and a Washington, D.C., think tank takes aim at county appraisers in Kansas who embrace "dark story theory" to escalate property values for higher tax collections.
The theory proposes that property tax valuation can be based on the potential income earnings of a business, rather than the value of land and buildings on the property. A national retailer, for instance, would have a higher value than a local mom and pop store.
Michael Lucci, of the Tax Foundation, said courts consistently rule against the practice.
"From our perspective," Lucci said, "for the local governments to continue doing this introduces a lot of instability into the local tax code, into local budgets. It's not transparent, and it certainly has these businesses having to go to the courts every year, saying, 'Look, they inappropriately valued my property again, so we're going to have to appeal it again.' "
Alan Cobb, the president and CEO of the Kansas Chamber, said the appraisers' calculations amount to "government malpractice."
Lucci and Cobb joined Tax Foundation colleagues Katherine Loughead and Erica York for a discussion of policy recommendations in an episode of The Topeka Capital-Journal's Capitol Insider podcast.
The chamber, which lobbies for business, and the foundation released a 150-page report last week that identifies a framework for comprehensive tax reform.
Recommendations include allowing Kansans to itemize on state income taxes while taking the standard federal deduction, as well as relieving multinational corporations of state tax liability for foreign earnings. Gov. Laura Kelly vetoed those proposed changes in two bills passed by the Legislature during the 2019 session.
"I do think we'll get to a veto-proof majority this year," Cobb said.
The report also calls for lawmakers to establish a "safe harbor" for remote sellers — online retailers who don't have a physical presence in Kansas.
A June 2018 decision by the U.S. Supreme Court opened the door for states to assess sales tax to online purchases. Other states set a minimum threshold for sales, such as $100,000, before charging sales tax. The idea is to shield small businesses with few online sales from the hassle of collecting and remitting sales taxes.
Kansas, however, is collecting sales tax revenue from every vendor.
"Kansas has an extreme outlier policy on this issue, and it's really inviting a court challenge where Kansas is highly likely to lose," Lucci said.
Other policy stances include phasing out special incentives for individual businesses, applying sales tax to services while lowering the overall rate and requiring local government entities to notify the public by mail of proposed tax increases.