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The Tax Break For Kansas Farmers That Few Know About

Sam Zeff
KCUR 89.3

Everyone knows agriculture is huge in Kansas.

It’s a $62 billion a year industry that accounts for 43 percent of the Kansas economy and touches every part of the state.

Following the 2012 Brownback tax cuts, farmers no longer had to pay state income tax -- just like 334,000 LLCs, S corporations and sole proprietorships.

But farmers get a little something extra: They also pay no state income tax on subsidies they get from Washington. They paid no state income tax on the $479,082,041 in livestock subsidies in 2014 (the last year of available data), no state income tax on the $162,264,735 in wheat subsides and no state income tax on $109,494,713 in corn subsidies.

In all, about 40,000 farmers in Kansas receive about $1 billion a year from the U.S. Department of Agriculture.

Even many farmers think not paying taxes on this money is a bad idea.

"Kansas Farmers Union policy supports a progressive tax. We feel if you’re making the money you should pay the taxes," says Donn Teske, president of the Kansas Farmers Union.

Teske says his organization, which leans progressive, wants all Kansas businesses to pay state income taxes. The conservative-leaning Kansas Farm Bureau doesn’t have a specific policy on the farm tax exemption but says it supports an equitable tax system.

The Teske family has been farming in Pottawatomie County since 1868, when President Ulysses S. Grant signed their homestead papers.

And in the 148 years Teske’s family has been in Kansas, they’ve seen some fabulous years and some awful years.

Credit Sam Zeff / KCUR 89.3
KCUR 89.3
Kansas Farmers Union President Donn Teske opposes the 2012 tax cuts and says all businesses, including farmers, should pay income tax on profits.

In those good years, they would pay state income tax. But no longer.

"It goes back to profitability. If a person is making a profit in whatever they’re doing, they ought to pay their fair share of the taxes," Teske says.

There are few things in government more complicated than USDA farm subsidies.

There are programs for conservation, insurance and crop prices.

But suffice it to say that almost all subsidies are considered taxable income by every state. Except Kansas.

"This is just another piece of evidence that this tax loophole is absolutely ridiculous and not justifiable in the real world,"  says Rep. Jim Ward, a Wichita Democrat and one of Gov. Sam Brownback's loudest critics.

This tax break wasn’t even part of the original tax cut package.

Ward says the farm income exemption got tacked on in the waning hours of the 2012 session as Republican leaders scrambled to get enough votes to pass the tax cuts.

"If you remember the chaos of passing that tax cut plan and what was going on, a lot of the worst politics happened and that probably was what one or two senators needed to move their vote," Ward says.

The 2012 tax cuts were the centerpiece of the conservative economic plan in Kansas -- cuts that Brownback has argued led to an explosion of new businesses.

The theory, of course, is the same behind the income tax exemption for LLCs, S-corps and sole proprietorships: People would use the money to hire more employees.

But Prof. Art Barnaby Jr., an agriculture economist at Kansas State University, says most farmers have whatever labor they need to run their operation.

"Unless they took on more acres, I doubt that they would have hired new employees," he says. 

Barnaby says the only way the farm tax exemption would generate jobs is if farmers used the savings to buy, say, combines or tractors. But even that wouldn't guarantee new Kansas jobs.

"If they bought John Deere, it wasn’t manufactured in Kansas. If they bought Gleaner, it was," he says. 

Before the 2012 cuts, Kansas farmers already got a lot of tax breaks. They paid no sales tax on equipment, no taxes on diesel fuel, and their property is taxed at a lower rate.

All fair, Teske says, because farming is so volatile.

But the state income tax exemption, he says, just doesn’t sit well.

Ending this tax break would take money out of Teske’s and other farmers pockets. But as a Kansan whose family has been on this land for generations, Teske says he’d be happy to help pay for schools, roads and health care.

Sam Zeff covers education for KCUR and is co-host of the political podcast Statehouse Blend. Follow him on Twitter @SamZeff.

You deserve to know what your taxpayer dollars are paying for and what public officials are doing on your behalf – I’ll work to report on irresponsible government spending in the Kansas City area and shed light on controversies that slow government down. And when you hear my voice in the morning, you know you’re getting everything you need to start your day. Email me at sam@kcur.org, find me on Twitter @samzeff or call me at 816-235-5004.
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