Kansas is a good place to open a small business, says Thumbtack.com.
It’s the ninth-easiest state for entrepreneurs, says the website, an online clearing house that matches contractors or other business service providers with potential customers.
Kansas this month dropped personal income tax rates some 24 percent and virtually eliminated non-income business profit taxes for 191,000 small-business owners.
But those factors have nothing to do with the rankings, Sanford Daniels, Thumbtack’s co-founder in San Francisco, said this past week.
“What Kansas business owners praised was the lack of restriction and minimal need for licensing to open a business, and the availability of networking facilities when they wanted advice,” Daniels said.
Kansas’ big tax cuts weren’t mentioned in the survey, conducted among more than 6,000 small business owners nationally – 58 in Kansas – between Nov. 8, 2011 and Jan. 8, 2012.
That was before Kansas Gov. Sam Brownback proposed the cuts.
The real surprise, however is that Thumbtack’s poll participants gave Kansas such high marks for its business-friendly climate when more widely touted rankings places Kansas in the middle to lower half of the list – rankings such as the Tax Foundation’s Business Climate Index or the American Legislative Exchange Council’s Rich States, Poor States compilations.
Daniels can’t explain the disparity, but Kansas’ 6.45 percent top personal income tax rate before the cuts already was modest in comparison to other states “and maybe that wasn’t as important to these little guys as people thought,” he said.
About 270 Kansans a month – among each 100,000 adults in the state – start a new business, say researchers at the Kauffman Foundation in Kansas City, Mo., the nation’s largest researcher of entrepreneurial activity.
That’s about midway between Arizona, where 520 new businesses form monthly, and West Virginia, lowest at 150 new businesses per 100,000 adult residents.
Brownback and others who argued for passing the largest single tax reduction in state history say the cuts will allow even greater numbers of aspiring entrepreneurs to strike out on their own and, as they prosper, vault Kansas’ overall economic growth out of its decade-old economic doldrums.
That might happen, said Mark Robyn, but the plan faces challenges, too.
Robyn is an economist and specialist in state and federal tax policy at the Tax Foundation, a nonpartisan tax policy research organization in Washington, D.C.
He gives Kansas’ new tax plan high marks for lowering rates and reducing or eliminating a number of tax credits, so that more people pay into the system.
Small-business owners who use their personal household tax forms to pay taxes on their business profits get a break, as well. The new Kansas plan eliminates most of these so-called “pass-through” filers pay on rental income, royalties or other kinds of small-business income. They pay Kansas income taxes only on whatever amount of that income they pay themselves in salary.
But traditionally incorporated share-holder-owned corporations – known as C-corps – and the closely-held pass-throughs aren’t always that large when you measure size, complexity or contributions to jobs and the economy, Robyn said.
“So, if you throw in tax breaks for one of the two, as Kansas is doing, you may see many more businesses becoming pass-throughs, whether it makes economic sense or not,” Robyn said.
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