Kansas committee hears proposal to base countywide sales-tax shares on assessed value instead of tax levies

The House Committee on Taxation held a hearing on House Bill 2,377, a proposal to change the formula that divides countywide retailer sales-tax revenue between counties and cities by using each jurisdiction’s assessed valuation rather than the property tax levies reported in the previous year.

The reviser told the committee the bill would amend the statute governing countywide retailer sales tax so that the portion of revenue apportioned among a county and cities would be based on total assessed valuations used to calculate ad valorem property taxes in the preceding year instead of the ‘‘total tangible property tax levies’’ previously used.

Why it matters: proponents said the change would remove a perverse incentive that penalizes counties and cities that lower their mill levies. Sedgwick County Commissioner Jim Howell told the committee that, after lowering its mill levy, Sedgwick lost about $700,000 in countywide sales-tax revenue it otherwise would have received and that the county’s total countywide sales-tax pool is about $140,000,000.

How proponents presented it: Commissioner Jim Howell, testifying for Sedgwick County, said the current formula rewards jurisdictions with higher tax levies and can discourage reductions to property tax rates. ‘‘When you lower the mill levy, you also give up sales tax dollars, and that’s the problem,’’ Howell said, adding the change would ‘‘put the incentives right where they belong’’ and that most cities’ shares would not change dramatically under the proposed approach. Mike Taylor, representing the Kansas County Commissioners Association, told the committee counties generally view sales tax as a useful tool to lower property-tax burdens and supported the change.

Questions and concerns: lawmakers pressed proponents on possible unintended consequences. Representative Sanders asked whether the bill would lower property taxes; the reviser and proponents said the bill affects only distribution of countywide sales tax and would not directly change property tax rates. Representative Francis and others raised examples where a single high-value taxable facility or large industrial valuation could skew assessed-value calculations, and Representative Bridal asked whether exempt properties — such as nonprofit-owned land — would enter the calculation.

Department of Revenue comment: Kathleen Smith of the Kansas Department of Revenue told the committee the bill ‘‘would only affect local sales tax collections and would have no fiscal effect on state revenues or expenditures’’ and requested clarifying language in section 1 to ensure the statutory change matches the drafters’ intent.

Technical points and open items: proponents and lawmakers asked staff to model the distribution impacts for individual counties and cities before the bill moves forward. Committee members noted that some municipalities could lose revenue while others gain it; Howell said 18 cities in his county would see reduced shares while two would gain. Committee members also discussed whether assessed valuations used in the formula would exclude exempt or abated property; committee discussion indicated those exempt valuations would not be included, but staff research was requested to confirm technical details and transitional impacts.

Outcome and next steps: the committee closed the hearing on HB 2,377 after testimony and questions and did not take a final vote at the hearing. Lawmakers asked for additional analysis from staff and the Department of Revenue to clarify drafting and to estimate specific impacts on counties and cities before further action.

The committee also noted other business for future meetings, including review of minutes from Jan. 29–Feb. 17.