Business owners predicted layoffs and lost customers if a bill eliminating some sales tax exemptions becomes law. They descended upon the Statehouse for a Senate hearing Wednesday.
At issue is House Bill 2380, which would lower the sales tax rate on food by 1 percent beginning in 2020 and eliminate some sales tax exemptions.
Motor towing, mini-warehouses and self-storage, collection agencies, private investigators, security guards and nonveterinary pet care currently don’t collect sales tax. That would change on July 1 under the bill.
Irene Hoheusle, with Account Recovery Specialists – a collection agency based in Dodge City, Garden City and Wichita – called the bill potentially devastating. She warned that the business, which employs more than 100, would have to shed workers.
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Haase and Long, a medical debt collections company in Lawrence, would lose clients and probably have to lay off workers, said Devon Haase Kim, the CEO. Cuts would begin immediately under the law, she said.
The House passed the bill Monday, 78-42, after it had been amended last week to strip out several sales tax exemptions. The Senate Tax Committee, which held Wednesday’s hearing, is now considering what to do with it.
Over five years, the bill would generate about $135 million for the state general fund. The bill would collect about $90 million in the first two years; the state faces a projected budget shortfall of about $900 million in those two years.
“We understand there’s a budget problem and everybody’s looking for ways to find some more money to pay these deficits. But we don’t think this is the way. Yes, you might get a few more dollars in the taxes you’ll collect or absorb from our clients, but you’re going to destroy Kansas jobs,” Hoheusle said.
Haase Kim said that if she has to lay off workers she will lose the ability to scale her business, which will cost her new clients. Her business employs 35, she said.
Multiple staff members had children last year, and another baby is expected this fall, she said. Others are in the process of buying homes.
“These staff members will have a hard time finding jobs, because their job experience in collections will not be in demand because the other agencies in the state will not be hiring because of this tax as well,” Haase Kim said.
The Self Storage Association said the exemptions targeted for repeal should not be a handful of interests late in the session. The process should be open, deliberate and comprehensive, a lobbyist for the group said.
The Kansas Motor Carriers Association said the bill’s time line is unrealistic. Businesses that would now have to collect sales tax would need to do so beginning July 1, less than 45 days away.
Rep. Kristey Williams, R-Augusta, who had championed the bill in the House, said she had discussed the implementation of the bill with the Department of Revenue and assured lawmakers that it would work.
She acknowledged she is asking lawmakers to do a difficult thing, but she said sales tax exemptions have continued to increase.
“Once an entitlement occurs, once an exemption occurs, once a credit occurs, it’s almost impossible to take it away. And as we hear it today, everybody has a reason that they should keep their exemption,” Williams said.
Eliminating exemptions will allow lawmakers to keep down the size of rate increases for personal income taxes, she said. Cutting exemptions also broadens the sales tax base, she said.
Sen. Julia Lynn, R-Olathe, said going after exemptions always stirs opposition. She said she is looking forward to an ongoing state audit that will examine tax exemptions, credits and abatements.
“We have not done any kind of a definition of what those exemptions – what our policy is for granting any kind of exemption. Because if we don’t do that, we’re going to end up back here year after year going through the same process,” Lynn said.
Sen. Tom Holland, D-Baldwin City, said he is interested in reducing the food sales tax. Lawmakers came close to approving a reduction in 2015, but ultimately took a rate decrease out of the final tax plan.
But Holland, who owns an information technology business, voiced concerns over the implementation of the bill and unknown effects.
“I’m very concerned about the unknown repercussions we might be getting into,” Holland said.