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Taxed Out of Business

From the Junction City Daily Union, March 24, 2005

By Kay Blanken
Special to The Daily Union

Friday evening, many of us in Junction City opened our newspaper to the headline, “Local Alco Closing Its Doors.” The Kansas City Star reported that 20 Alco stores across Kansas were closing their doors. This is a Kansas corporation that began in Abilene.

I, as a business person, am not surprised. Not just Alco is closing its doors; Kansas has lost many stores and companies in the past four years. Is it bad business practices? I don’t think so. Many of the companies and businesses have been successful for many years. What then is happening? Starting three years ago, the state began raising the fees to Kansas businesses and companies trying to make up for the budget shortfall that our Legislature created by overspending. This overspending came from both Republicans and Democrats. Because the Kansas Constitution forbids ending a year without a balanced budget, legislators had to find a way.

To balance the budget, the Legislature hit many businesses with fees that do not pertain to their type of business. You paid the fees or you risked forfeiting your business. Many of us have our life’s blood in these businesses. We paid the fees.

This year we again received a new shock. Businesses pay a franchise fee for the privilege of doing business in Kansas. On Feb. 7, Kansas businesses received notice that the franchise tax would max out at $5,008. This is based on the gross your business does before you pay any expenses. Two weeks later we received notice the maximum would be $20,000 — plus a $55 fee for the secretary of state. Here is the letter we received:

Dear Business Customer:

Last spring the Kansas Legislature passed SB 147, which requires businesses to pay a franchise tax (we have always paid a franchise tax) to the Kansas Department of Revenue and a separate franchise fee to the Secretary of State. Both are due the 15th day of the fourth month following the tax year end — e.g. April 15, 2005, for entities with a December 31, 2004, tax year end.

KANSAS DEPARTMENT OF REVENUE — franchise tax (maximum $20,000.00)

Business entities that have $100,000.00 net worth or more must pay to the Kansas Department of Revenue a franchise tax of 0.125% of the total net worth. Business entities required to pay the tax will file a return with the Department of Revenue, which must be accompanied by taxpayer’s balance sheet. (I can’t find anyone who does not have to pay.)

Do not send your franchise fee and annual report to the Department of Revenue. Your business will forfeit if the correct annual report and franchise fee are not received by the Secretary of State on or before your forfeiture.

The letter goes on to tell us how to file and report. What it does not say is how we are to get the money to pay the franchise fee. Many of us in business are just now coming out of a very long downturn. Many have had to borrow money to keep their doors open, and then many have not made it.

Now many of you reading this will say, “This don’t affect me.” Sorry, but it does. Do you work for a business or company? If you do, you may not have a job for much longer. Or you may find yourself moving to a state that cares about the business and economic climate. Some of you may be saying, “This is only one tax. What’s the beef?” Wrong.

Businesses pay corporate income tax, which is 4 percent of net income. In addition, net income in excess of $50,000 is subject to a 3.35 percent surtax. The tax law goes on to say “Kansas corporate income tax is calculated using the apportioned net income and the corporate income tax rate of 4 percent for the first $50,000 and 7.35 percent for excess above $50,000.” Then businesses face insurance tax, 2 percent; intangible property tax, counties can tax up to 2.25 percent on intangible property; personal property tax; inventory tax; state sales tax 5.3 percent; city 1 percent; county 1 percent (at this time); unemployment insurance tax from 0.08 percent to 7.4 percent depending on our rating (our rating is based on the willingness of an employee performing his/her job); worker’s compensation insurance (premiums are calculated per $100 of annual employees wages; wonder why that pay raise didn’t come through?), property tax, 25 percent; Social Security tax, 7.65 percent — and I could go on with other licenses/permits and fees, both local and state. So why did Alco call it quits?

There are a lot of reasons why businesses cannot make it in today’s climate. Buying power is one. A small business pays more for goods than a large conglomerate. But we all pay the same type of taxes and have the same routine costs.

With Alco closing, Junction City, Geary County and USD 475 will still receive property taxes, but they will not receive the sales tax revenue Alco generated. And our community will no longer receive Alco’s charitable donations, leaving a lot of good projects to suffer.

At a town hall meeting on Saturday, a candidate for the local school board asked about school finance. The response from state Rep. Barbara Craft was, “We know we need more funding for schools, and maybe we will have to go to the businesses. Oh, maybe I had better rephrase that.”

The state’s mission statement is, “Our state is constitutionally restrained from overspending, providing a foundation of fiscal integrity for our business climate.” So what happened to throw the state so far off of its budget? Why are so many businesses closing or going out of state to do business? The last count I had was more than 1,300 businesses over three years, and I have no idea of how many jobs were lost. Why are cities raising the fees for services?

What affects business also affects you. It’s time we all became concerned and start asking our elected representatives the “why” questions.

Kay Blanken is a Junction City commissioner and co-owner of B&K Enterprises.

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