ECONOMIC DEVELOPMENT INCENTIVES REVIEW
A Special Committee on Commerce met in December to discuss economic development tools. The Committee concluded that the State must determine whether initiatives and incentives, specifically tax expenditures, are accomplishing their intended goals. It is important for the State to set up a process for regular evaluation of economic development initiatives and tax incentives. The Committee recommended a joint subcommittee be appointed to develop legislation that will allow for routine, regular evaluation of initiatives and incentives.
The Committee recommended the resources and technical expertise of the Pew Charitable Trusts be used to develop a new evaluation policy. Legislation will not be introduced this year for such an evaluation.
The Pew Charitable Trust presented testimony to the Committee. Tax incentives are one of the primary tools that states and communities use to achieve goals of creating jobs, raising wages and helping local economies thrive long-term.
These incentives cost states and local governments an estimated $45 billion annually. Since the start of 2012, more than 20 states have enacted laws requiring evaluation of tax incentives or improving existing evaluation requirements. In 2015 & 2016, 13 states approved such laws. Kansas has not been one of them.
Pew has identified 10 states that have well-designed plans for regular reviews, experience in producing quality evaluations, and a process for informing policy choices. After selecting the evaluator, the first step is to design a plan for the evaluation. The second step is to measure the impact of incentives. The third step is to inform policymakers. The fourth step is to set a review schedule. The most common approach for states is to use legislative evaluation or audit functions. A policy question is whether Kansas will work with the existing Legislative Post Audit or hire outside evaluators?
The largest economic incentive in Kansas has been the Sales Tax and Revenue (STAR) Bond Financing Act which is a form of tax increment financing that allows city governments to issue special revenue bonds that are repaid by the revenues received by the city (or county) from incremental increases in transient guest taxes, local sales taxes, and use taxes collected from taxpayers doing business within the designated STAR district. The primary STAR goal was to increase economic development geared towards major, destination tourism. The bonds are usually for 20 years.
Reauthorized in 2017, the STAR financing act will sunset July 1, 2020 although in 2018 there is a moratorium on new STAR Bond districts. Presently there are 11 active STAR Bond projects. In 2017, the State remitted over $35 million in sales and use tax revenues back to communities. Since the inception of STAR Bonds, the State has distributed $557.4 million.
The Community Improvement Districts (CIDs) Act provides authority for a local sales tax of up to 2% to be imposed on the sales by retail businesses located within those districts in order to fund the costs for commercial development or redevelopment projects in the district. The total number of CIDs has grown to 123 and likely to grow given the popularity with municipalities and developers. In 2017, $11.8 million in CID sales tax revenue was distributed to finance CID projects.
The Transportation Development District (TDD) Act provides authority to municipalities for a 1% local sales tax. Currently there are 36 TDDs. In 2017, almost $10 million in TDD sales tax revenue was distributed to finance TDD projects. There are 17 CIDs and TDDs that overlap STAR Bond districts.
INTERNET SALES TAX- HB 2756
This legislation permits the collection of existing sales tax from remote sellers. State and local governments have lost billions in uncollected sales taxes and Main Street businesses find themselves at a significant competitive disadvantage with online merchants.
E-commerce represented 13% of total retail sales ($5.076 trillion) in 2017 and 49% of the growth in retail sales. Amazon is responsible for much of the growth. The total value of transactions from American consumers on Amazon.com reached $189 billion last year up from $145 billion in 2016.
There are still legal disputes over charging sales tax on internet sellers that do not have a tangible presence in a state. This bill asserts that if a customer has a nexus (such as a phone ‘ap’) with an online merchant that is enough. The United States Supreme Court is presently revisiting this topic in a South Dakota case while Congress continues to do nothing.