I think we will see several proposals to adjust the dials on tax policy. Proposed tax modifications brought forward could include exemption repeals, consumption tax ideas, passive income modifications, property tax modifications, and pass through income tax modifications. I personally don't look for any change to the low income tax rates Kansas now has in place. The change I'm most interested in is the pass through income. I think a loop hole exists allowing pass through entities to pass 100% of income, including owners salaries, tax free. That is to say, avoid all Kansas income taxes, even on owner's salaries. In my mind the legislative intent was to tax owner's salaries at the same low rate as W-2 type employees and allow the non-wage income or working capital to pass through tax free. Pass through entities can be; Sole Proprietorships, LLC, Sub-S, Operating Partnerships, etc.
Here is a simple example of the loop hole.
I think we need to modify the small business pass through policy back to legislative intent. Closing the loop hole would result in $140 million annually to fill the budget hole. This is more of a fairness correction than anything.
Closing of the pass through income loophole, is not a tax increase. It is, rather a correction, to reflect legislative intent - in essence, the elimination of a drafting error. The Legislature did not intend to totally eliminate the state income tax on LLCs, S Corps, and sole proprietorship. Instead, the legislative intent was to lower the tax rate on these entities to provide additional working capital to grow their businesses and hire employees.