Gannon decision puts internet sales tax, sports gambling back on the table

photo by: Nick Krug

Kansas Statehouse in Topeka, February 2014.

Monday’s decision from the Kansas Supreme Court on school finance may be just what it takes to put two seemingly unrelated issues back on the table at the Kansas Legislature: taxing internet sales and sports gambling.

To refresh, the court ruled Monday in the long-running case Gannon v. Kansas that lawmakers had come close, so to speak, to passing a constitutional school funding plan but were still a bit short.

The justices agreed with the state’s argument that total funding for schools is about $522 million short of where it should be. But if the state is going to take five years to get up to that mark, it needs to factor in the impact of inflation over that period.

That has staffers in the Kansas State Department of Education and the Kansas Legislative Research Department working overtime, trying to figure out how much that will cost. But while there is still no “official” estimate, legislative leaders said Wednesday that they expected it to be in the range of $85 million to $100 million a year for the second through fifth years of the plan — on top of what lawmakers have already approved.

That’s part of what has been outraging conservatives in the Legislature, prompting them to renew their calls for a constitutional amendment to rein in the court’s power to decide school finance cases. But there are a few bright spots on the horizon that could temper people’s attitudes.

The first is that revenues have been coming in far above projections for the last several months. Official numbers for the month of June — and for all of fiscal year 2018, which ends June 30 — won’t be published until Monday, but several sources have said that early indicators are that June has been a very good month for state revenues, due in some part to an “explosion” in corporate income taxes, which may be fallout from recent changes in federal tax law.

“Yeah, we’re having another good month,” House Speaker Ron Ryckman Jr., R-Olathe, said Wednesday following a meeting of the Legislative Coordinating Council, a group of top Republican and Democratic leaders from both the Kansas House and Senate.

But even if the recent trend in normal state revenues should turn around, lawmakers still have some new options to consider to raise new revenue, thanks in large part to the U.S. Supreme Court.

In two important cases decided in recent weeks, the nation’s high court struck down a federal law that prohibited most states from legalizing sports wagering; and just last week it said states are free to tax retail sales conducted online, even if the retailer doesn’t have a physical presence in the state.

“I think all of those are going to be on the table next year,” House Democratic Leader Jim Ward, of Wichita, said in an interview.

Kansas lawmakers considered both of those ideas during the 2018 session but chose not to act, knowing that the issues were on the U.S. Supreme Court’s calendar.

On Wednesday, though, the Legislative Coordinating Council met to take care of several pieces of business, including authorizing interim study committees to look at various issues ahead of the 2019 session. One of those will be a joint meeting of the House and Senate Federal and State Affairs committees to look again at sports wagering.

The bills that were introduced in 2018 would have authorized the Kansas Lottery to operate a sports wagering platform. But Ryckman said there were still some complicated issues that needed to be resolved, such as where the wagering would be allowed, either in the state’s four existing casinos or possibly also through mobile apps; what kinds of sporting events would be legal to bet on, because nobody really wants to see state-sponsored gambling on high school and Little League games; and how much of a cut should go to governing leagues, or even to the NCAA.

None of the interim committees authorized Monday was specifically instructed to look at internet sales taxes because, according to Ryckman, it’s not entirely clear whether legislation is even needed now.

“Some folks in our Research (Department) say it may not,” he said. “Based on the Supreme Court’s decision, some of the corporations are going to start paying it already, and in fact, in the next couple of months they may.”

Still, some in the Legislature may want to follow in the footsteps of South Dakota, which initiated the case, by setting a minimum floor, in terms of transactions or gross sales, below which small mom-and-pop-operated websites would not have to pay the tax.

But Ward said he was eager to see the state reap what it could from internet sales.

“I think we have to take a good look at fairness in sales tax,” he said. “My brick-and-mortar folks in Wichita are paying that sales tax. It’s adding an overhead cost to their business. We have to look at the whole concept of fairness.”


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