Kansas has the second-highest sales tax in the nation on groceries, but a bill on its way to the Senate could change that.
Under a plan that passed the House of Representatives last week, Kansas would join the majority of states and exempt food purchases from the general sales tax.
The provision is contained in a sweeping tax bill that passed the House after a five-hour debate. Senate Bill 177 would also cap government spending growth at 3 percent a year and use future revenue growth to phase out the income tax on some businesses. It would also cut in half the Earned Income Tax Credit, a benefit for working-poor parents. A similar income-tax buy-down bill failed in the House last year, but Gov. Sam Brownback has been pushing hard for the idea since his State of the State speech in January.
According to figures from the national Federation of Tax Administrators, Kansas has the 12th-highest overall sales tax rate in the country at 6.3 percent – which doesn’t include city or county sales tax.
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Of the 12 highest tax states, only Kansas and Mississippi tax food at the same rate as other purchases. Only Mississippi’s rate of 7 percent is higher than Kansas’.
That puts Kansas well outside the mainstream.
Overall, 31 states have a sales tax but exempt food. Seven states tax food, but at a lower rate than other purchases. Five states – Alaska, Delaware, Montana, New Hampshire and Oregon – have no sales tax.
Only seven states, including Kansas, tax food at the same rate as other purchases.
In Kansas, low-income parents, seniors and people with disabilities can file for a food sales tax refund of $91 per dependent for a household income of $17,700 a year or less, or $46 per dependent for household income between $17,700 and $35,400.
‘Like taxing air’
Rep. Jana Goodman, R-Leavenworth, who proposed the amendment to do away with the tax on groceries, said she’s not surprised that the rate is among the nation’s highest. She noted that Kansas is only average in terms of food security, a measure of people going hungry.
“The main reason to do a reduction in the sales tax on food is to help low-income people,” she said. “That’s going to add up to quite a bit more money (than the refund), and they get it every single time they go to the grocery store and they don’t have to wait … until the end of the year. I know that’s really important to people on fixed incomes.”
While low-income people can get some of their tax back, Goodman said she thinks it’s a bad idea to tax anyone’s food.
“It’s kind of like taxing air,” she said. “It just seems unfair to me to tax something people have to buy.”
The food exemption would not apply to prepared food purchased in restaurants.
Cutting the sales tax on food was originally estimated to cut state revenue by about $350 million, but an analysis prepared Thursday estimated the cost would vary from year to year, from $267 million to $298 million.
Coupled with the phasing out of income taxes for farms, sole proprietorships, Subchapter S corporations and limited liability companies — the majority of companies in Kansas — SB 177 would cost state government about $2.2 billion over the next five years, the analysis said.
Advocates of the business tax cuts, including Brownback, worked closely on the plan with former Reagan administration economic adviser Arthur Laffer, who theorizes that losses from lowering tax rates will be offset by increased commerce and hiring.
Too big a cut?
While just about all tax cuts resonate with Republican legislators, Democrats advocate a more gradual — they say more fiscally responsible — approach.
House Minority Leader Paul Davis, D-Lawrence, said he likes the idea of not taxing food sales, but it may not be realistic to do it all at once.
He said the overall financial impact of the tax plan the House approved will damage the state’s ability to fund schools, services for the disabled and public safety and “leave the state in a constant budget crisis that won’t ever go away.”
“It would be nice if we could look at trying to phase out the sales tax on food over time, if the economy continues to move forward,” Davis said. “I think it’s a positive thing that the House voted to show strong support for that. I’m not expecting that that’s probably going to be in the final product. I voted for it because I wanted to send a signal that this should be a real priority in terms of tax relief.”
It is almost a guarantee that in this election-driven year, some form of tax cut will pass the Legislature.
This session, all of the “big three” taxes – income, sales and property – have been on the table.
Goodman said she expects the food tax exemption to go to a House and Senate conference committee and is not sure whether it will make it to the final bill. But she said she plans to campaign for it with members of the conference committee. The final outcome may not be known until early May when the Legislature adjourns for the year.
The House initially voted overwhelmingly for a Democrat-sponsored amendment that would have shifted $90 million to local governments to buy down property tax rates.
But Republicans later rescinded the vote, saying they didn’t understand it would have deleted Republican-supported language to slow property tax growth that comes with rising property values.
While cutting taxes usually plays well with the public, some taxpayers find the current moves confusing.
Since the economic crash in 2008, state residents have heard little from the Legislature other than laments over cuts to school operating budgets, benefits for the disabled and other services, ostensibly because of revenue shortfalls.
“I don’t understand it at all,” Jane Merth said as she loaded groceries in her car outside a Wichita Dillons store. “How much money will that (grocery tax cut) save us? And then they say the state is hurting for money.”
Merth, who paid $1.62 in tax on her groceries, said she thinks savings from cutting food taxes will prove illusory anyway.
“I think it’s great, but we’re going to pay for it someplace,” she said.
Trent Tevis, an electrical contractor who described himself as “pretty conservative,” said he sees both sides of the issue.
“The pro is any time you lower state taxes, you leave money in the hands of people to use it as they need it. (Government) doesn’t spend it as efficiently. The bad thing is the state loses revenue that it may need.”
Overall, he said he’d rather see cuts in income and property taxes. He said he especially objects to the property tax because all his property was bought with money that had already been taxed, and he doesn’t see why he should have to pay again year after year.
Eric McFadden, a full-time aviation student, said he thinks cutting sales tax on food would be the most beneficial for the most people, even though it would only be a small amount per week.
“It would be a big help, because with the economy being tight, every dollar you can save helps,” he said.