Proposed constitutional amendment would lower sales tax on food in Kansas
Topeka ? Advocates for lowering the state sales tax rate on food are pushing for a constitutional amendment that would phase in a reduction down to 2 percent over two years.
The Senate tax committee held a hearing on that proposal Thursday. If approved, it would lower the state sales tax rate from the current 6.5 percent down to 4 percent in calendar year 2019, then to 2 percent in 2020 and thereafter.
The amendment would not, however, require cities and counties to lower their local sales tax rates.
Lowering the food sales tax rate has been a high priority for many in the Legislature, particularly Democrats, since 2015 when lawmakers raised the state tax rate to 6.5 percent as part of an effort to address the state’s continuing revenue shortfalls at that time.
Sen. Tom Holland, D-Baldwin City, one of the cosponsors of the measure, argued that when state and local sales taxes are combined, Kansans pay one of the highest tax rates on food of any jurisdiction in the country, exceeding 10 percent in some jurisdictions, including portions of Lawrence.
“We provide business incentives for businesses to invest. We need to be providing incentives to families to help support them in raising their kids,” he said in an interview before the hearing. “The best way we can do it is by making our sales tax, particularly on food, less burdensome.”
“The other issue we have here too is the whole issue with our state borders and the surrounding communities outside of Kansas,” he added. “We have more and more people basically going outside the state to make food purchases. We need to address that as well too.”
Brenda Johnson, who owns a small store in the town of Bird City, in the extreme northwest corner of the state, gave a firsthand account of how Kansas businesses lose out to neighboring states. Bird City is close to both the Colorado and Nebraska state lines, two states that have no sales tax on food items.
“And the story I may hear from my customers as they’re purchasing a gallon of milk is, ‘Honey, we’re just getting this gallon of milk. Tomorrow we’re going to travel to McCook, Nebraska, and buy our groceries.’ After a 10-hour day, that’s a devastating comment to hear, that you’ve wasted your time for 10 hours,” she said.
Meanwhile, Scott Thellman, of Lawrence, president of Juniper Hill Farms, which produces specialty vegetable crops on about 60 acres in Douglas County, said lowering the sales tax on food would also be good for a segment of Kansas agriculture.
“Lowering the sales tax on food is important to me, in part because it makes local foods more affordable, more competitive in the national marketplace and more accessible to our state’s population,” he told the committee. “The accessibility in turn leads to increased sales, which leads to additional growth in additional job creation at our farm and others across the state.”
Passage of the amendment would, however, have a significant impact on state revenues.
Kathleen Smith, of the Kansas Department of Revenue, said her agency is still trying to calculate the full fiscal impact. But she said the loss of revenues from reducing the tax on groceries alone — food purchased for eating or preparing at home — would be $128 million to the state general fund in the first fiscal year after it takes effect and $246.4 million in the second fiscal year.
However, Smith noted that in its current form the amendment would extend beyond groceries and would include food purchased in restaurants as well.
Smith said the department had not yet calculated the effect of that. But Holland said it was not his intention to lower the sales tax on restaurant food.
Holland, however, did say that he has an idea about how the state could replace that revenue.
“We need to raise the marginal income tax rate on very wealthy earners in this state,” he said before the hearing.
“With the recent Trump-Republican tax cuts, we have probably $3 billion a year flowing back to Kansas taxpayers, and the vast majority of them are extremely wealthy,” he said. “There’s more than enough money out there to support not only a reduction in sales tax on food but also funding our schools and funding KPERS.”
In fact, Kenneth Kriz, director of the Kansas Public Finance Center at Wichita State University, said research conducted by that center found that switching from reliance on sales taxes to income taxes could have positive economic benefits.
“What we found is that there would actually be higher employment using income tax versus the sales tax on groceries but slightly slower sales and output within the state,” he said.
No one testified in opposition to the measure, although Rob Gilligan, of the Kansas Association of School Boards, gave neutral testimony to express concern about the impact a loss of revenue would have on the state’s ability to meet a Kansas Supreme Court mandate to adequately fund public schools.
Committee chairwoman Sen. Caryn Tyson, R-Parker, suggested the measure might have a better chance of passing if it were done as a statutory change instead of a constitutional amendment.
Holland, however, said a constitutional amendment would offer more protection to consumers because it could never be changed except by another constitutional amendment.
The proposed amendment was introduced in 2017 and had one hearing in the tax committee last year, but the panel took no action, and it was carried over into the 2018 session.
To become law, the measure needs a two-thirds majority vote in both the House and Senate and a majority vote of the public at the Nov. 6 general election.