TOPEKA, Kan. (AP) — Kansas legislators became tangled Wednesday in a local property tax case that could mean tens of millions of dollars in savings for manufacturing companies and big revenue losses for cities, counties and school districts depending on how lawmakers respond to a recent ruling.
Officials from Montgomery County in southeast Kansas asked the Senate Assessment and Taxation Committee to reject a bill overturning a recent ruling from the state Court of Tax Appeals siding with the county in its dispute with a fertilizer manufacturer. They've been joined by local officials from other areas who believe reversing the administrative court's decision could have broad implications for funding local schools and services.
But the bill is being pushed by the Kansas Chamber of Commerce, an important consideration for the Republican-controlled Legislature because the business group is influential within the GOP. The chamber along with Coffeyville Resources Nitrogen Fertilizers, which is facing an annual tax bill that's $11 million more than it anticipated, worry that letting the ruling stand will hurt the state's economy.
Some legislators are uncomfortable being in the middle. Chairman Les Donovan said the Senate committee could debate the bill next week, or he could ask for a study this summer and fall. He urged the parties to seek a compromise.
"This is a very, very important deal — a very big deal," said Donovan, a Wichita Republican. "I appreciated the remarks of some of the people saying we need to be cautious and go slow here, and I agree with that."
The legal dispute between Montgomery County and Coffeyville Resources involves how the county appraiser valued its equipment. The issue is whether it is considered "real" property as land and buildings are, or "personal" property as other business equipment often is. The dispute is likely to go to the Kansas Supreme Court at some point.
The company contends its property should be valued at $26 million, while the county puts the value at more than $300 million. Kevan Vick, the fertilizer manufacturer's executive vice president and general manager, told the committee that the company had anticipated a property tax bill of between $1 million and $2 million for 2011 and instead was told to pay $13.7 million. The company has been paying its property tax bill under protest for three years.
"That, I can assure you, is not good for our business," Vick said. "It has to be detrimental to the growth of business and industry within the state."
In 2006, the Legislature exempted new business machinery and equipment from property taxes, a policy pushed by then-Democratic Gov. Kathleen Sebelius that had broad bipartisan support. Kent Eckles, a state chamber vice president and lobbyist, said local governments are trying to get around the exemption — which they opposed — by treating such equipment as real property rather than personal property.
But Jeffery Jordan, the attorney who represented Montgomery County in the tax case, said the Court of Tax Appeals relied on existing legal standards for determining how business equipment is treated. For example, those standards consider whether equipment is free-standing or bolted into a building.
The League of Kansas Municipalities and the Kansas Association of School Boards are opposing the measure. State officials don't yet have figures for how much total revenue local governments could lose or which ones would be hit the hardest.
Coffeyville City Manager Jeff Morris said his community would be forced to consider cutting basic services such as police, or dramatically boosting its property tax levy. He said Coffeyville worries that it would have to increase its levy by at least 30 percent, or about $600 a year for the owner of a $100,000 home.
"We believe it will cause a tax shift all across the state of Kansas, not just in our local area," he said.
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Property tax measure is SB 317.
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Online:
Kansas Legislature: http://www.kslegislature.org
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