Archive for Saturday, August 16, 2003

Business owners seek redress for sales tax grievance

August 16, 2003


— Lawmakers got an earful Friday from business owners who said they were sucker-punched by the state with a new streamlined sales tax law.

They demanded the Legislature have a quickie special session and repeal the measure immediately.

State Sen. Mark Buhler, a Lawrence Republican, apologized for the law, conceded he had voted for it and was a member of the Senate tax-writing committee that worked on it.

"I apologize for that. I'm the dumbest of the dumb," he said.

But a special session -- which some of Buhler's colleagues have called for -- isn't necessary, he said, because lawmakers can fix the law when the Legislature convenes in January for the regular legislative session.

Several business owners asked what they were supposed to do in the meantime. Knowing that the Legislature probably would change the law, they wanted to know whether they should ignore it or spend a lot of money trying to comply with it.

"Why leave us hanging on the hook?" asked Robert Cole, director of the Pottawatomie County Economic Development Corp.

'Bad for Kansas'

More than 100 business owners and economic development officials attended the meeting, which was part of a statewide tour set up by House Speaker Doug Mays, R-Topeka, and the Kansas Chamber of Commerce & Industry.

And while the business owners were polite, their comments were direct: They want the Legislature to meet in special session for one day and repeal or change the effective date of the new law.

"Every day this law exists, Kansas business people are investing time and money to comply with a law that is bad for Kansas," said Michael Worswick, chief executive officer of Wolfe's Camera Shops Inc., of Topeka. "I ask you to stop this waste now."

At the center of the controversy is the law that requires businesses that deliver goods to assess sales taxes based on the rate of the city to which the goods are shipped. The law took effect July 1.

Before the change, Kansas retailers charged customers the sales tax rate that applied where the retailer was located. For example, a couch purchased in Lawrence and delivered to Topeka would be charged the sales tax rate in Lawrence.

Under the new law, the couch bought in Lawrence and delivered to Topeka is assessed the sales tax rate in Topeka.

Accounting nightmare

Owners of businesses that deliver a lot of goods say the change is an accounting nightmare. There are 751 jurisdictions in Kansas that assess sales taxes; in some areas there are various sales tax rates within the same city, even within the same ZIP code.

Many small-business owners said calculating how much tax to send to the state was taking days instead of minutes, and that they couldn't afford to spend the tens of thousands of dollars needed to update their computers to make the necessary changes.

Also under the new law, the sales taxes paid follow the purchases, which means some cities in Kansas would be hurt financially because tax revenue they once received would flow to other jurisdictions.

For example, a custom wood manufacturer in St. Marys that sells much of its product to out-of-state customers provides $280,000 in local tax revenue. That would be cut by 40 percent under the new law, Cole said.

"This law is a complete discouragement to business," he said.

Internet taxes

Lawmakers voted for the law, saying it was a needed step toward working with other states to try to capture sales taxes on Internet purchases. The state has said Kansas was missing out on $70 million per year in taxes on Internet sales.

But several people at the meeting said those figures were wildly inflated and that because Congress hadn't been willing to enforce taxes on most Internet sales, there was no reason for Kansas to join the other states in the so-called streamlined sales tax project.

"Why are we always the first to do these dumb things?" asked Rebecca Rice, a lobbyist and small-business owner.

State Sen. David Jackson, R-Topeka, said the bill was touted as a way to help "Main Street" businesses compete against Internet retailers.

"I had to believe what I was told," Jackson said, but added that he had since come to believe that the law was unworkable.

Jackson said he wanted a special session to repeal the bill but noted that Senate President Dave Kerr, R-Hutchinson, didn't want one. Neither does Gov. Kathleen Sebelius.

Kerr and Sebelius say the law was needed to pave the way for Kansas to collect taxes on Internet sales.

Illegal suspension?

A special session can be called by the governor or with a two-thirds vote of the House and Senate.

Mays said he supported a special session because confusion and uncertainty about the law were hurting businesses.

"But as the speaker I have to be realistic," he said. "If we can't get the Senate to go along, there will be no special session."

The effective date of the law needs to be pushed further into the future, and changes are needed to make implementation easier, Mays said.

For now, he said, businesses are in the unfair position of being told to spend the money necessary to abide by a law that may be changed next year.

Shortly after the law took effect, business owners complained so much that Sebelius, Kerr and Mays announced that the law would not be enforced for six months, allowing businesses time to make the necessary adjustments to comply.

Now some, including Mays, are questioning whether they had the authority to do that.

"The law is on the books. We don't have the legal right to suspend the law," he said.

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