It now pays to be thirsty instead of hungry in many Kansas cities.
Walk into your favorite Lawrence grocery store and fill your cart with food to feed your family. After the July 1 increase in the state’s sales tax, you’ll now pay 8.85 percent in sales tax on your supermarket purchase.
Now, go to your favorite Lawrence liquor store and fill your cart with liquor to feed your wild hair. At the checkout counter, you’ll pay an 8 percent tax.
Lawrence may be the liquor capital of the state of Kansas, but booming business at local liquor stores does nothing to help the coffers of city and county governments.
The state keeps the 8 percent liquor enforcement tax that liquor stores charge. For a county like Douglas that enjoys a cocktail or two, the financial implications are significant.
Based on liquor enforcement tax collections numbers in fiscal year 2009, about $3.45 million worth of liquor was sold each month in liquor stores in Douglas County. If city and county government were allowed to impose their current local sales taxes on those purchases, they would have generated about $1 million for the year.
In case you are confused, Lawrence does benefit from some liquor sales. A traditional sales tax is charged on cereal malt beverage beer sold at grocery and convenience stores. A 10 percent drink tax also is charged on drinks sold at bars and restaurants. Local governments get about 70 percent of those tax collections.
Finally, a tax shelter the common guy can understand.
Some state leaders, though, are scratching their heads about how this could have happened.
“This is clearly an awkward situation we’ve put ourselves in,” said Sen. Marci Francisco, D-Lawrence.
Advocates for the poor are dismayed but not necessarily surprised.
“I don’t think it really reflects the values of our state,” said April Holman, policy director for Kansas Action for Children. “But this is what happens when your tax system is a hodgepodge of whatever is the most politically expedient.”
How liquor tax works
Raising taxes on liquor has proven not to be politically expedient in Kansas.
For those who don’t look at their liquor store receipts, here’s how the state’s liquor tax works: Liquor stores don’t charge any local or state sales taxes. Instead liquor stores charge a special type of tax called a liquor enforcement tax. It is a flat 8 percent at every liquor store in the state.
When state legislators this year added an extra 1 cent per dollar onto the state’s sales tax rate, they did not increase the liquor enforcement tax. That’s nothing new. The liquor enforcement tax hasn’t been increased since 1983. During that same time period, there have been five increases in the state sales tax.
But this time, the increase pushed the sales tax total higher than the 8 percent liquor tax in a host of communities.
According to an analysis done by the Journal-World, every city of 25,000 people or more — except Wichita — now has a sales tax higher than the liquor tax.
Overall, 221 out of the 627 incorporated cities now have a total sales tax — the 6.3 percent state sales tax plus the local sales taxes — higher than the liquor tax. Sometimes it is quite a bit higher. Sixteen cities — including Tonganoxie and De Soto — have a general sales tax of more than 9 percent.
“This shows that we do need to take a look at our tax structure and make sure it reflects our values,” said Holman, whose organization has argued the state shouldn’t charge a sales tax on food. “I don’t think most Kansans want to see food taxed at a higher rate than liquor.
“I think this probably does send a bad message.”
A leader in the Kansas liquor lobby disagrees. Phil Bradley, executive director of the Kansas Licensed Beverage Association, said the real issue is that state government is increasing the amount of taxes you pay.
“I don’t think it sends any message other than the state wants more of your money and has found a way to do it,” Bradley said.
On the fairness issue, Bradley is not convinced there either.
“If you want to make sure everything is taxed the same, you will have some tremendous difficulties,” Bradley said. “There isn’t a tax on services. There are a lot of services that aren’t necessities, and they aren’t taxed. I don’t hear people crying foul about that.”
Evaluating sales tax
Maybe not yet. But some legislators — even from vastly different sides of the aisle — say more analysis needs to be done on the equity of the state’s tax system.
“It is always helpful to look back at what we’ve done,” Francisco said. “This situation certainly warrants discussion.”
The issue of charging a sales tax on food and grocery items may be part of it. Kansas is one of only seven states that levies a full sales tax on food. Rep. Anthony Brown, R-Eudora and one of the House’s more conservative members, said he wants to eliminate the sales tax on food.
“I think it is horrible that we tax food in Kansas,” Brown said. “It is ridiculous. This situation we have right now is a bad deal all the way around.”
But eliminating the sales tax on food would cost the state hundreds of millions of dollars. How the state would deal with that budget gap likely would be contentious.
The League of Kansas Municipalities, which represents cities, has argued that the state could afford to eliminate the food sales tax and create a more equitable tax system, if multiple sales tax exemptions were eliminated.
“There are literally billions of dollars off the sales tax rolls,” said Kimberly Winn, director of policy development for the league. “That is the bigger, broader policy issue for us.”
Eliminating exemptions likely won’t gain favor with many conservatives, Brown included.
“I think we need to lower both taxes,” Brown said of the liquor tax and the sales tax. “The problem is not that everything else needs to go up. The problem is we’re expecting too much out of government.”
Francisco said she believes there is a different problem. She noted that the legislature frequently waits until the end of the session to tackle weighty issues and then many members refuse to have a full discussion.
The process sometimes results in unexpected oddities.
“I think clearly there isn’t any reason people should be paying less for a tax on liquor than they do on food,” Francisco said. “That’s easy to understand.
“But when there is so much pressure on not raising taxes, we don’t have a good discussion about the tax mix. That’s what happened here. We need to continually look at this issue of whether our taxes are balanced, but this pressure to not say anything at all about taxes makes it very difficult.”