A tax abatement is a common economic development tool used to encourage new investment as well as increase or maintain basic employment in the community. In Kansas, there are two methods for obtaining tax abatements on real property: a constitutional tax abatement and the issuance of Industrial Revenue Bonds. The selection of which method to pursue largely depends on the type of business taking place on the property as well as additional financial considerations (e.g. fees to issue bonds).
Constitutional Tax Abatement
A constitutional tax abatement (Article 11, Section 13 of the Constitution of the State of Kansas) allows a tax exemption on all or a portion of the appraised value of land, buildings, and personal property used exclusively for a new business or an expanding business (if it will create new jobs) primarily involved in one of the following:
- Research and Development
- Storage of goods traded in interstate commerce
Industrial Revenue Bonds
K.S.A. 12-1740 permits cities and counties to issue revenue bonds for the purpose of paying the costs of purchasing, acquiring, constructing or equipping facilities for the below business categories:
- Natural Resources
- Recreational Development
Note that per the City’s economic development policies, there are restrictions on issuing IRBs for projects that are principally for retail or residential use. Refer to Section 1-2112, Special Consideration for Housing and Retail Projects, in the City of Lawrence’sOverarching Economic Development Policy (PDF).
Tax abatements can be granted for up to 10 years. An exemption begins in the calendar year after the year that the business commences operations or the year after the business expansion is completed.
It is the policy of the City to grant up to a 50 percent“baseline” abatement for firms that meet required investment and employment criteria. Firms may receive an additional abatement amount if they meet additional criteria. For more information, refer to Section 1-2123 in the City’s Overarching Economic Development Policy (PDF).
For consideration and review of a tax abatement request, an applicant must submit the following to the City Manager’s Office:
- City Application for Tax Abatement.
- Project Plan which:
- Summarizes the project
- Demonstrates the financial and professional capability to complete the project
- Proposes a timeline for project completion
- Provides information on how the project meets eligibility requirements, including wage and health insurance thresholds, as outlined in the Sections 1-2121 and 1-2122 of the City’sOverarching Economic Development Policy (PDF).
- Provides a summary of project benefits to and assistance requested from the City
- Application Fee payable to the City of Lawrence. (Please note that this does not include the State required Court of Tax Appeals filing fees, noted below.):
- $500 for a Constitutional tax abatement
- $1,000 for an IRB tax abatement
Review and Consideration Process
- Staff Review and Analysis: After receipt of all application materials, City Staff will facilitate an initial review of the request which may include:
- Verification of applicant’s eligibility
- Review of financial documents for reasonableness
- Verification of major indebtedness with lender/mortgage holders,
- Phone calls to banking, financial, suppliers, and customer references.
- Cursory reconciliation of future cash flow projections
- Correlation with other incentive requests from the City
- Adequacy of performance provisions
- Significant positive or negative aspects of the application
- Cost-Benefit Analysis—Proposed project and tax abatement must result in a positive cost-benefit ratio of at least 1:1.25 over a 15 year period.
From this initial review, Staff will prepare a summary report for consideration of the request by the Public Incentives Review Committee and the City Commission.
- City Commission receives request and refers to PIRC for review.
- Notification is provided to the other taxing jurisdictions affected by the proposed abatement in accordance with state statute.
- PIRC conducts a public meeting to hear the proposal from the Applicant and receive public comments. Comments, recommendation, and additional information are forwarded to the City Commission for consideration at a public hearing.
- A Public Hearing is held during which the City Commission considers the application and may make a determination. If the exemption is found to be in the best interest of the public, an ordinance is passed approving the exemption and the Ordinance for exemption is published in the local newspaper.
- Performance Agreement is entered into between the City and applicant which identifies performance requirements and exemption details.
Administrative Follow-Up: Compliance and Continuation of Exemption
- After City Commission approval of the ordinance and performance agreement, the applicant must submit an application to the Kansas Court of Tax Appeals for a tax abatement:
- Applicant completes COTA Application Form and Package. (City staff can provide assistance.) Note there is a COTA Application Filing Fee that must be submitted along with the application form and package.
- County Appraiser reviews the COTA application/package and submits to COTA
- COTA receives request and makes decision
- Applicant must make a claim each year for the duration of the exemption with the office of the assessing officer in the County in which the property is located.
- Each year of the exemption, applicant is required to complete and submit compliance information to the City as outlined in their Performance Agreement. This information will be used to relay the performance of the company to the PIRC and the City Commission in the form of the annual tax abatement report and determine the amount of annual incentives the company will receive for that year.
- In addition, any business which has been granted a tax abatement shall pay an annual renewal fee in the amount of $200 to the City.
- Sales Tax Exemption: IRBs may also be used to grant an exemption from sales tax for property purchased 100% with the proceeds of the IRBs. Labor and materials used in construction as well as equipment purchased with IRB proceeds are generally exempted from State and Local sales tax.
- Bond Counsel: The issuance of IRBs will require coordination with and consultation from Bond Counsel.
- Timeframe: The timeframe for review, analysis and consideration of a tax abatement varies depending on the project parameters. However, most projects typically take between 30-60 days for processing.
For more information on the City of Lawrence’s policies regarding tax abatements, refer to the City of Lawrence’s Overarching Economic Development Policy (PDF).
Or contact the City of Lawrence’s Economic Development Coordinator at (785) 832-3472.