TOPEKA, Kan. — Two southeast Kansas cement plants would be in line for significant property tax relief under a proposal advancing Tuesday in the House that defines what should be considered property and what is machinery or equipment.
The bill, which won preliminary approval on an unrecorded 101-13 vote, is a response to escalating property taxes that have been assessed to two cement plants since the state exempted certain commercial industrial machinery and equipment from property taxes. While not mentioning the companies by name, the legislation would provide millions in property tax reductions for Ash Grove in Neosho County and Monarch in Allen County.
Rep. Richard Carlson, chairman of the House Taxation Committee, said while the bill didn't provide "a global solution" to the issue, it did address the needs of the state's last operating two cement plants. A final vote is expected Wednesday.
Legislators exempted machinery and equipment from taxes starting in 2006 in effort to encourage new business investment and growth in manufacturing. The change resulted in a loss of millions in revenue for cities and counties that was no longer taxable. In the subsequent years, however, county appraisers increased the companies' taxes by reclassifying what was formerly equipment and making it real estate and subject to taxes.
The House bill would define what could be counted as machinery and equipment and exempt only in the cement industry.
Carlson said in the case of Ash Grove, county appraisers changed the ratio of machinery and equipment and real estate property from 62 percent to 98 percent real estate, increasing the company's tax liability from $3.5 million in 2011 to $8.1 million in 2013.
"Frustration has reached all kinds of levels and we've looked at this four three years in the House Taxation Committee to find a global solution," said Carlson, a St. Marys Republican. "This does solve the problem with the cement industry."
Supporters of the measure fear that without definitions to limit what county appraisers can classify as real estate that companies will be forced to pay steep increases in property taxes that could force them to close their operations. Rep. Tom Sawyer, a Wichita Democrat and tax committee member, said while the bill addressed part of the problem there was a need to revise the appeals process and the state Court of Tax Appeals which has the authority to modify tax liabilities that are challenged.
"My fear is that after this bill passes that the tax committee becomes the de facto tax court and all appeals will be brought to us," Sawyer said.
Critics of the measure argued that cement companies, while making a case for changes, shouldn't be singled out and tax policy revised in a piece-meal manner. Efforts to amend the bill to broaden the impact failed during the House debate.
Rep. Don Hineman said the current process was rooted in more than a century of case law dating to 1870s where what was real estate and what is equipment was settled with a three-point test. The criteria were based on the intended use, if it was attached to property and if it benefits the real estate or business production. Hineman predicted other industries would be forced to pay higher taxes or seek special legislation in future.
"This bill does nothing to solve their problem," said Hineman, a Dighton Republican.