The Governor has signed a bill to create an annual $20 fee for the Division of Alcoholic Beverage Control to fund the online licensing system and maintenance.

HB 2362 – ABC Modernization Fee – Creates a $20 annual fee on license renewals to fund maintenance and updates to the online licensing system.  Fee will be paid on both initial and renewal liquor license applications. The bill maintains the current $50 application fee, but dedicates $20 of that fee to the modernization fund. The $20 modernization fee is added to the renewal application fee, which will remain at $10.  Introduced Feb 13 2017, House passed 96-28 March 6 2017. Senate FSA hearing Jan 30 2018.  Senate passed 37-3 Feb 21.  House concurred March 9 111-10.  Governor signed March 20.  Begins July 1 2018.

HB 2502 – Trailer Bill for 2017 Beer Law – Regulation and taxation of the sale of beer up to 6.0 ABV by cereal malt beverage retailers, allowed after April 1 2019.  Sales of the stronger beer by grocery and convenience stores will be subject to state and local sales taxes instead of the state liquor enforcement tax.

 Pursuant to legislation enacted in 2017 (SB 13), starting on April 1, 2019, CMB licensees will be allowed to sell beer containing no more than 6.0 percent alcohol by volume. HB 2502 clarifies that CMB licensees are under the oversight of the Director of Alcoholic Beverage Control (Director) [the Division of Alcoholic Beverage Control is within the Department of Revenue]. The Director is permitted to issue citations and impose a fine, not exceeding $1,000, for each violation of the Kansas Cereal Malt Beverage Act. Moneys collected from fines will be deposited in the State General Fund. The bill clarifies the Director will conduct the market impact study, required by continuing law to be submitted to the Legislature following the tenth anniversary of the effective date of the 2017 legislation, using information available to the Director.  Introduced Jan 17.  Hearing Jan 29.  House passed 117-6 Feb 8. Senate hearing Feb 28. Senate passed 39-0 March 7. Governor signed March 15.

In April 2017, the Kansas Legislature passed House Substitute for SB 13, now known as the Beer Compromise.  There were many reasons for the compromise proposal, but the strongest was to retain the clear State priority for the safe and efficient regulation of the sale of alcoholic liquor and the role of the independent liquor store as the retailer of higher alcohol beer and wine and spirits.

HB 2502 – Trailer Bill

At that time, industry members believed that some details of the plan might require follow-up legislation.  During the interim, representatives of KABR participated in meetings facilitated by the Division of Alcoholic Beverage Control to develop rules and regulations and possible cleanup language.  The product of those conversations includes HB 2502 and new rules and regulations.

Support State Authority and Scope of Ten-Year Report

The Kansas Association of Beverage Retailers (KABR) respectfully supports language to further clarify the authority of the Division of Alcoholic Beverage Control to enforce the legislation and the language defining information to be included in the ten-year impact report to the Legislature.

Neutral on Sales Tax

KABR is neutral on the tax policy established in HB 2502.  As many of you will recall, cereal malt beverage is currently subject to sales tax while strong beer is subject to the 8% enforcement tax.  How the tax will be levied has a fiscal impact on the State, cities and counties.  It also has an impact on the competitive price of the product at retail.  Liquor sales were $846.5 million in 2016, generating $67.8 million in revenue.

100% of the enforcement tax is deposited in the State General Fund, while sales taxes are split with local governments.  The State collects the base rate of 6.5%, but the amount due to the local authorities varies.  Not only do rates differ between cities and counties, but special taxing districts may levy different rates for businesses in the same neighborhood.

As a result, the retailers across the state have differing opinions on the question of how the product should be taxed.   Therefore, KABR is neutral on the tax policy established in HB 2502, but reserves the option to change that position if there are amendments.  Our small businesses should not be penalized by new tax policies that disadvantage current licensees.

Background:  Tax Question

If economic studies are correct, a significant percentage of the beer sold in Kansas after April 2019 will be sold by the CMB retailers – the grocery stores, convenience stores and others. 

Former versions of Uncork Legislation had proposed sharing 3% of all enforcement taxes with cities and counties.  This concept was problematic because it would redistribute revenue in a manner that may or may not reflect the actual cereal malt beverage sales taxes lost by communities.

As proposed in HB 2502, the CMB retailers will pay sales taxes on strong beer sales in the same way they currently pay sales taxes on cereal malt beverage (CMB) sales.  Cities and counties have requested this language because they receive a portion of sales taxes and are concerned the new law will reduce local tax revenues.

The State of Kansas has interpreted the new law to require CMB retailers to pay the 8% liquor enforcement tax on strong beer (Enforcement taxes go to the State General Fund.)  We do not know how much revenue the State or the cities may lose or gain under either scenario - the revenue change may be very small since the State sales tax rate is 6.5% and the cities and counties vary in what they charge above the state rate. A review of the sales tax rates by taxing jurisdiction show that many Kansas communities pay a higher sales tax rate than 8%. See rates here https://www.ksrevenue.org/pdf/5digitzip0118.pdf.

Background:  Contents of the 2017 Beer Legislation

As the states around us have changed their liquor laws, the wisdom of the 2017 Beer Compromise has come into focus.  In Oklahoma, the 2016 public referendum opened the sale of strong beer and wine to the corporate chain retailers without corresponding equalization of the regulatory framework for liquor retailers.  Colorado’s 2016 legislation expanded the number of outlets for retail liquor stores and for corporate pharmacy liquor licensees, but less attention was paid to the one-strength beer policy in the legislation.  Both of these states will trade cereal malt beverage sales for strong beer, but without the important considerations for regulation and long-term economic viability included in Kansas law.

Beginning April 1, 2019 –

·         CMB retailers will sell beer up to 6 percent alcohol by volume,

·         Liquor retailers may sell all current beer, wine, and spirits products plus cereal malt beverage, 

·         Liquor retailers may sell other products up to 20% of gross sales,

·         Liquor retailers may sell tobacco products and lottery tickets, except that the sale of tobacco products and lottery shall not be included in the 20% limitation,

·         The Division of Alcoholic Beverage Control will enforce the law in both retail environments

·         The Division of Alcoholic Beverage Control will issue an impact study ten years after implementation to report the market impact of the law change. 

·         The Uncork proponents agree that ten years will be a reasonable time to measure the impact on the industry without further legislation to expand the locations where liquor products are sold,

·         Statutes and regulations are modified to include application of trade practice, nondiscrimination and price rules to CMB and liquor licensees,

·         CMB retailers will continue to be licensed by cities and counties, liquor stores will continue to be licensed by the state,

·         Distributors may require minimum orders for delivery, as well as retaining current definitions for CMB and beer for purposes of their franchise agreements,

·         Kansas will retain the separate retail licenses for the sale of stronger alcohol products v. limited alcohol beer.

Today and after April 2019, the Kansas independently owned retail liquor stores are the state regulated off premise retailer of higher alcohol beer and all wine and spirits products.  It is imperative that Kansas retain this important role for our independently owned Kansas retail liquor stores for the sake of public safety and for our small businesses.

It is unfortunate that so many other states, including Oklahoma and Colorado, are moving away from this efficient and effective regulatory model.

We hope that legislators will fully understand the significance of this proposal and the tenuous agreement it represents. 

                                      

Respectfully submitted by Amy Campbell, Executive Director

785-969-1617 campbell525@sbcglobal.net

How will the State Tax Beer up to 6.0% sold by CMB Off-Premise Retailers after April 2019? When the Kansas Legislature passed the “Beer Law” during the 2017 Session, the question of how to tax the strong beer sales at CMB outlets was left open.  Income Tax Legislation was occupying most of the Legislature’s time in May and June, so the question of how SB 13 would impact taxes on strong beer was left to 2018.   "Beer up to 6.0%" does not include 3.2% CMB. Currently, the State collects 8% liquor enforcement tax on all strong beer, wine and spirits sold by retail liquor stores to the public or sold by wholesalers to on-premise retailers. Sales tax is paid on all cereal malt beverage products sold by CMB retailers to the public. This was a topic of discussion at a recent meeting for liquor industry organizations hosted by ABC Director Debbi Beavers.  The meeting covered possible trailer legislation and proposed changes to rules and regulations.   New rules and regulations will be drafted in the next two months for approval.   The Tax Issue will be part of a trailer bill during the 2018 Legislative Session.  There are two ideas being discussed and they are described below. Hopefully, the description will help members decide how and if KABR should have a position on this question.  KABR members will debate this and other questions at the annual meeting this weekend in Wichita.  1.      Situs of Taxation – This literally means “place of taxation”.  In other words, where the sale takes place determines the tax that applies.  Positives: Cities and Counties would continue to receive the local portion of sales tax revenue, and could see increased revenues if the sales of strong beer in the convenience and grocery stores exceed the sales of cereal malt beverages.   (Cities and Counties are still primarily responsible for licensing and regulating CMB Retailers. The Kansas League of Municipalities supports this option and will ask that legislators allow the funds to continue to go into their general revenue fund, not require that money to be spent for designated purposes.  Many see this as the simplest solution – it would avoid requiring CMB Retailers to remit a new tax to the State and the administrative costs to the State and the retailers for setting up the new remittance.   Could also apply to CMB sales by Retail Liquor Licensees. Retains the separate nature of CMB Retailers v.Retail Liquor Licensees. Concerns: CMB Retailers would pay a different tax rate on the same product.  This would benefit CMB Retailers in areas where the sales tax is less than 8% and benefit Retail Liquor Licensees where the sales tax is higher than 8%. State would lose revenue.  Currently, the State retains 6.5% of sales tax revenues but retains the full 8% enforcement tax. Need to address the tax to be paid on beer purchases by CMB On-Premise licensees (taverns) for re-sale.  NOTE: CMB On-Premise licensees can currently sell CMB by the package. Currently, Kansas does not track sales tax revenue on the sale of cereal malt beverages. If strong beer sales are not reported separately, the Division of Alcoholic Beverage Control will only be able to track strong beer sales in CMB outlets through gallonage reports from wholesalers.  (NOTE: Alternatively, the Department of Revenue could require a separate line item for strong beer sales tax OR audit strong beer sales through CMB outlets over a period of time in order to create an algorithm that would provide this data.) 2.      Licensees Pay 8% Liquor Enforcement Tax – This would require CMB Retailers to begin paying the 8% Liquor Enforcement Tax when selling strong beer. Positives: CMB Retailers and Retail Liquor Licensees would pay the same taxes on the same products. The State would retain the revenues from sales of strong beer and possibly see increased revenues, depending whether or not the legislation creates a sharing formula with local cities and counties.  The State has an important interest in tracking the sales volumes to know where stronger products are being sold.  (NOTE: Alternatively, the Department of Revenue could require a separate line item for strong beer sales tax OR audit strong beer sales through CMB outlets over a period of time in order to create an algorithm that would provide this data.) Concerns: Cities and Counties would lose revenue.  The Legislature could choose to implement the3% sharing formula that has been a part of previous versions of Uncork bills,but many believe that the new distribution formula could not accurately replacelost sales taxes from the areas who sell the most CMB products.  Winners would be based on population and notactual sales data.  The new state tolocal revenue transfers would be subject to state sweeps. Retail Liquor Stores support their cities and countiesand full funding of the important services these local communitiesprovide.  This is just one of the important issues to be discussedthis weekend at the KABR Annual Conference: Planning for a New Market.   RSVP to Attend Here! Other issues: 1.   Proposal to pass legislation to allow retailers to charge customers for tastings. 2.  Proposal to pass legislation to allow third party delivery "apps" - such as DRIZLY. 3.  Proposed changes to rules and regulations to assure State regulation of price non-discrimination and trade practice rules. 4.  New rules for inside entrances and vestibules as it relates to liquor stores being allowed to sell other products. 5.  Tobacco sales, taxation and licensing. And more! Contact:    Brian Davis, President  316-990-1425  Email President Amy Campbell  785-969-1617   Email Lobbyist

Impact of Changes to Kansas Income Tax

The Kansas Department of Revenue has issued new notices regarding changes in tax rates and policies in effect July 1, 2017, as a result of the passage of Sub for SB 30 by the 2017 Kansas Legislature.  The 2017 session was all about filling a budget hole and Kansas businesses and individuals are affected immediately.

The rate increases are retroactive to January 1, 2017, which means that businesses and individuals should begin as soon as possible to withhold or set aside the necessary funds for Kansas income taxes.

Sub for SB 30 reinstates taxes on non-wage income for small businesses and raises rates for individual income taxes for 2017 and again in 2018.  It also divides taxpayers into three brackets, instead of two.  The income tax rates were not raised to pre-2012 rates, but will result in smaller paychecks for Kansas employees. 

Department of Revenue Notices:  https://www.ksrevenue.org/prnewtaxnotices.html 

The Kansas Department of Revenue has released new tables for employers to increase withholdings beginning on July 1 to match 2018 rates.

In a statement, the agency said it is using the 2018 rates in its tables for 2017 to “ensure that enough income is withheld from paychecks to catch up for the increased and backdated tax liability in the second half of the year, and also to provide certainty for Kansas employers.”  Read more at Kansas.com here:  http://www.kansas.com/news/politics-government/article158628974.html 

Employers are asked to begin withholding at the higher rate as of July 1.  Read the notice:  https://www.ksrevenue.org/taxnotices/notice17-02.pdf.  Find the new withholding tables here:  https://ksrevenue.org/forms-btwh.html

Non-wage income filers, such as sole proprietors or LLC owners, are asked to begin making estimated payments immediately-  https://ksrevenue.org/pdf/k-40es17.pdf - although penalties will not be assessed now. 

Additionally, the 2018 due dates for remitting withholding tax to the state and for notifying employees of taxes withheld have changed from the last day of February to January 31.  

Legislature Adjourns Sine Die

On Monday, the Legislature returned to Topeka for Sine Die, the ceremonial last day of the 2017 Legislative Session.  The Senate met for less than 15 minutes and the House for less than one hour, both adjourning before noon.

There were no veto override efforts.  House Minority Leader Jim Ward, D-Wichita, hoped to override Governor Brownback's line item veto of a budget proviso relating to disability waivers, but the Senate met and adjourned quickly.  There did not appear to be enough House members present to be successful.

Jason Probst (D-Hutchinson) was sworn in to replace Patsy Terrell, who passed away suddenly during the veto session. 

John Wilson (D-Lawrence) announced his retirement from the House - saying that his young family and career needed his attention.  Said Wilson, "Now is actually a really great time to be in the Legislature. It's just not a really great time for me." 

Some believe that the Legislature will need to return for a special session after the Supreme Court reviews the new school finance plan, but others believe it will satisfy the court's concerns.

Governor Brownback vetoed Sub for HB 2313 – the lottery vending machine bill that included funding for mental health programs.   Read the Governor’s Veto message.  It is interesting that the Governor vetoed a bill that his appointed Lottery Director had worked very hard to pass.

Governor Brownback also vetoed two provisions of the budget bill – both relating to social services under the Kansas Department for Aging and Disability Services.

This extended session was all about filling a budget hole, creating a new K-12 Education Finance Plan and changing tax policy.  The Governor's proposal to double liquor enforcement taxes was not approved, but legislators caution that if they are ordered to revisit the 2017 K-12 Education Plan - tobacco, liquor and motor fuel taxes will be likely targets.

There are some interesting changes in the budget bill.  In addition to the Governor’s proposed budget, HB 2002 includes State Employee Wage Increases of 2.5 percent for all except elected officials and those who have had recent wage increases and 5.0 percent for employees who have not had a wage increase in five years.  Kansas will also open an on-site state employee health care clinic in Topeka at a cost of $2.7 million.

The Legislature rejected the Governor’s plan to securitize the Children’s Initiatives Fund / KEY fund.  It also rejected the plan to consolidate the Board of Barbering with the Board of Cosmetology, but did agree to merge the Office of the Securities Commissioner with the Insurance Department.

A number of programs received small funding boosts, including behavioral health, services for persons with disabilities and the senior care act.

The Legislature also extended the exemption for state mental health hospitals and other public health facilities to continue to ban concealed carry on those premises.  Other public buildings must allow concealed carry or provide armed guards and metal detectors at all entrances in order to assure that no one is carrying guns.  The Governor asked for the exemption for state hospitals, but some think he might veto the bill because it extends to KU medical center and county or city owned health facilities.  (A Governor’s Budget Amendment provided late in the session estimated it would cost over $12.5 million to hire 180 full time employees and buy equipment for the state hospitals in fiscal year 2018.)

SB 30 is the income tax bill that became certain after the Senate and then the House overrode the Governor’s veto last Tuesday.  The new tax policy does not fully roll back the tax cuts from 2012, but it does remove the LLC exemption and raises income tax rates.  The bill is projected to bring in an additional $582 million in FY 18 and $624 million in FY 19.  However, the budget still requires sweeps from the Kansas Highway Fund, transfers from the Pooled Money Investments Board, and delayed KPERs payments.  There may also be healthy internal borrowing in FY 18 to bolster the reinstatement of the 4% Medicaid cuts that were part of the Governor’s allotments in May 2016.  That funding is to be covered by increased HMO privilege fees, but those fees won’t come in until March 2018.

On another note, projected receipts from expanded gaming (casinos) are dropping – forecasts were reduced $2.8 m in FY 17, $6.5 m in FY 18, and $7.8 m in FY 19.  The Legislature adopted HB 2313 which will allow for Lottery vending machines, which is expected to increase lottery receipts.  That bill also includes a conference committee amendment permitting fraternal organizations to install pull tab vending machines, also facilitated by the Kansas Lottery.

Finally, there is a group of legislators – including many Democrats, who believe the new education finance plan passed in SB 19 last Tuesday will not pass Supreme Court scrutiny, and they could be back in Topeka in July for a special session.  That bill spends an additional $186.6 million in FY 18 and $283.8 million in FY 19 to satisfy the Supreme Court decision that K-12 funding is inadequate.

If you have questions about the budget or any other legislation, feel free to contact Amy.

The Kansas Legislature went home Saturday evening after approving Senate Sub for HB 2002 – the conference committee report containing the mega-budget and omnibus budget provisions.  The session lasted 113 days, just one day short of the record session in 2015.

The House/Senate budget negotiations were rushed this year, with the six members of the Appropriations/Ways and Means budget conference committee meeting every few hours beginning Thursday evening, after the House had adopted its budget bill, and wrapping up around midnight Friday night.

Legislators return to Topeka June 26 for Sine Die – the ceremonial last day of the session.  They may or may not have any real work to do, depending whether or not Governor Brownback pulls out his veto pen again.  He can line item veto items in the budget bill and some are predicting he will veto HB 2278, "the guns bill", which allows state hospitals and other public health facilities to continue to ban guns on their premises.  It is true that the administration requested the exemption for the state hospitals, but some believe he will oppose extending that privilege to KU Medical Center and other facilities

Flags at state government buildings are flying at half-staff in honor of Representative Patsy Terrell (D-Hutchinson).   Rep. Terrell died unexpectedly June 7 in her hotel room in Topeka.  She was found when fellow legislators became concerned that she had not come to the Statehouse for session on Wednesday. 

Rep. Terrell was new to the Legislature this session.  I and many retailers were very impressed when she was one of the few legislators on the House Commerce Committee to return emails to everyone who communicated with her.   I am grateful to have had the opportunity to get to know her better during the veto session.  Rep. Terrell was enthusiastic and smart, with a bright smile and a quick wit.  She was passionate about representing her constituents.   

Memorial services have not been set.

This week has already seen more action than any other 48 hours of this veto session.  There is now a new tax plan and an education finance plan for Kansas. Tonight at 8:05 p.m. the Senate voted to override the Governor’s veto of Sub for SB 30 – the tax legislation that the Legislature came together to pass on Monday.  A veto override requires a 2/3 vote, and the Senate vote was 27-13.    The House voted to override the veto at 9:45 p.m. with a vote of 88-31.   Read a summary of the tax package here – CCR for Sub for SB 30.  It is not a full repeal of the 2012 tax cuts, but does repeal the LLC tax exemption, increase income tax rates, and add a third income tax bracket.  It is similar but not exactly the same as the tax plan the Governor vetoed in February. Monday was a very busy day.  First, the House shot down SB 19 the joint tax/education bill that had tied up the Legislature on Sunday.  That proposal only got 32 votes. The conference committee then pulled out the tax portion of SB 19 and re-ran it with only the school finance language.  The House adopted the school finance formula 67-55 at 7:00 p.m. The Senate later approved the school finance package 23-17.    The Tax Conference Committee also crafted an alternative tax plan in the afternoon for consideration Monday evening.  The House adopted that broader tax proposal in the form of Conference Committee Report for Sub for SB 30 and passed it 69-52. The Senate adopted the tax package around midnight 26-14 and the Governor’s office wasted no time in putting out the word that he intended to veto it.  Senators immediately worked to find another vote in order to be able to override, and there were several moments on Tuesday when that seemed unlikely. On Tuesday, the House and Senate waited until 2:00 p.m. to convene and approved a few conference committee reports approved while everyone waited for the veto message from the Governor – which came down late in the afternoon. It was the third late night in a row in the Statehouse and many are encouraged to see the Legislature end their tax stalemate and move forward to develop the FY18-FY19 Budget. Senate Omnibus Budget Bill The Senate passed it’s omnibus budget bill around 10 p.m. Sunday night on a vote of 27-13.  Senate Ways and Means Chairman Carolyn McGinn offered a series of unusual amendments in an effort to – as she described it – allow members of the Senate to have meaningful input into the budget.  She stated that pay-go rules have led to dissatisfaction by many legislators, as most of the budget amendments are created by only committee members.  So, she offered amendments to delete multiple funding provisions including dollars for crisis stabilization centers, mental health centers, wage increases for state employees and waiver direct services rates.  With each proposed amendment, she stated her support for these budget enhancements and said she would vote against the amendments.  As a result, the Senate has verified its support of these enhancements. (These amendments were also unusual because they were mostly amending items that had been approved in SB 189 – the mega budget bill, not HB 2002.) There were a few amendments adopted, but the omnibus bill remained essentially the same. House Appropriations Committee passed their omnibus bill / mega budget bill after midnight Tuesday night.  The House isn’t expected to run that budget bill until Thursday.  Typically, the conference committee can’t start meeting until that has occurred.