Policy Documents

Corporate Tax Reform Will Enhance Kansas Competitiveness

Jonathan Williams and Chris Atkins –
February 21, 2007

Occasionally, politicians get the big questions right. In no place is that more evident in 2007 than in Kansas, where lawmakers are currently debating a package of corporate tax reform plans.

The Kansas tax burden is ripe for reduction, as Kansas taxpayers face the 18th highest burden of any state in the U.S., and the second highest looking just as Kansas' border states. Reducing corporate tax rates, as Governor Sebelius and legislative leaders are working to do, is also exactly the right way to reduce the burden, as Kansas' corporate franchise and income tax rates are also higher than most other states.

As the old saying goes, however, the devil is in the details. While Kansas lawmakers are correct to focus on corporate tax reform, several of the proposals on the table will not achieve the goal of increasing the competitiveness of the Kansas tax system. How far do lawmakers need to go in reducing corporate taxes to truly become competitive?

This study answers that question by presenting data on the Kansas tax burden, Kansas' business tax structure, and examining the Kansas corporate franchise and income taxes in detail. It concludes, based on the data, that Kansas needs to eliminate the franchise tax and reduce the corporate tax rate to at least 6.25 percent. Stopping short of these goals would not significantly enhance the competitiveness of the Kansas tax system and may, in the case of a failure to eliminate the franchise tax, actually lead to a decrease in competitiveness since Kansas' neighboring states are ripe to repeal or reduce franchise taxes as well.