COMMENTARY-Repealing franchise tax would help some farmers

ORIGINALLY WRITTEN JOHN SCHLAGECK / KANSAS FARM BUREAU
Production agriculture remains one of the most capital-intensive industries in this country. Hours of operation are long, intense and the window of opportunity is often short and fleeting.

Profit margins are razor thin. Producers continually monitor the markets, look to forward contract their commodities and seek to find an edge that will keep them productive and profitable.

One such measure that has the potential to help some farmers is the repeal of the Kansas franchise tax.

This is a .125 percent tax on net worth above $100,000 that goes through farms and other small businesses such as limited liability corporations and limited partnerships. Net worth less than this amount is exempt from the tax.

With many farms and ranches operating on narrow margins when compared to investment, absorbing this franchise tax can often be a real burden to the bottom line of these family businesses-much more so than to large publicly-traded companies.

In agriculture today, the rule rather than the exception remains increased production.

With increased production come increased operating costs including fuel, fertilizer, seed, herbicides, insecticides, etc. Increased production also means additional machinery and land.

The Kansas franchise tax is essentially another form of property tax on Kansas landowners, farmers and ranchers. In order to be in the business of farming, there must be land. This land contributes to net worth and as a result another tax is levied on that property needed for making food, fuel and fiber.

For business purposes, many agricultural operations are organized under this structure of limited liability and limited partnerships. They have to be to grow and prosper.

Many Kansas farming operations have multiple crops, sometimes several farms and often support two or even three generations of a family. Each is subject to this franchise tax-each subject to this additional tax burden-each tax is unfair to capital-intensive businesses.

No one would argue that it’s in our state’s best interest to have a healthy, vibrant economy-one that encourages creation of jobs, income and wealth.

It is counterproductive to impose a tax that discourages growth and penalizes accumulation of assets.

This franchise tax appears to be nothing more than an annual bill for the privilege of doing business in Kansas, unrelated to realized income, profitability or productivity.

The Kansas franchise tax is an economic disincentive for businesses who may be contemplating expansion or locating in this state. Many other states do not have such a tax. Simply put, it’s a bad tax for small business, farming, landowners and Kansas.

As our Kansas legislature wrestles with the budgetary challenges, it is fair to ask how the state can withstand lost revenues by repeal of this franchise tax. Farmers, ranchers and landowners believe elimination of this tax will have a beneficial fiscal impact.

With a more favorable tax policy, Kansas has the potential to attract new businesses.

Elimination of this deterrent to growing assets can stimulate new economic growth and increased opportunities in a state desperately needing them.

Last week the Kansas House of Representatives passed (91-28) HB 2031, a measure that repeals the Kansas franchise tax which calls for a phase out of the tax during a three-year period. It’s now in the Senate. Contact your senator and ask him/her to repeal the franchise tax.

John Schlageck has been writing about farming and ranching in Kansas for more than 25 years. He is the managing editor of “Kansas Living,” a quarterly magazine dedicated to agriculture and rural life in Kansas.

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