Reduce state sales-tax exemptions

08/27/2014 7:08 PM

08/28/2014 12:08 AM

Kansas Secretary of Revenue Nick Jordan is correct that the state’s system for granting sales-tax exemptions to charities is too political. He is also correct that fixing it is very difficult for the same reason: It’s political.

But it’s worth trying. Simplifying and eliminating many of the sales-tax exemptions would make the tax system flatter, fairer and more transparent and could help solve the state’s budget problems.

Speaking last week to the Wichita Pachyderm Club, Jordan noted that Kansas charities receive sales-tax exemptions not because they meet certain set guidelines but because they get lawmakers to grant them a special exemption. As a result, some well-connected charities are exempt from sales taxes while others are not, even though they do similar work.

“It’s really not a good way to do it,” Jordan said. “It’s really not. It’s very, very political.”

But changing the system is a battle. Groups that have exemptions fight to protect them, and lawmakers are afraid that eliminating exemptions will be portrayed as a tax increase on some campaign mailer.

As a result, the number of sales-tax exemptions keeps growing – from 30 in 1985 to more than 100 today. And with each added exemption, the state is losing out on more revenue – $5.9 billion this fiscal year, according to the Kansas Department of Revenue. That’s money the state could be using to cover its budget shortfalls, increase funding to public schools or further reduce its income-tax rates.

Former state Sen. Dick Kelsey crafted a plan several years ago to eliminate nearly all of the sales-tax exemptions. He recommended that the state use the resulting revenue to eliminate its corporate income taxes, eliminate the sales tax on food, and lower state individual income-tax rates.

There were some concerns with the plan. For example, taxing professional services such as legal and accounting could put Kansas at a competitive disadvantage, as other states don’t tax those services.

Still, Kelsey’s point was valid: Why should only certain sectors of the economy pay sales taxes?

Not surprisingly, Kelsey’s proposal quickly died. Lawmakers didn’t want to be accused of raising taxes on the Girl Scouts. Gov. Sam Brownback also didn’t think it was worth the political fight.

Perhaps the best approach is an idea Jordan also mentioned last week: Appoint an independent panel to review the exemptions and make a recommendation, similar to the process the military and Congress use to recommend military base closings.

“Give a bill to the Legislature, and it’s an up or down, yes or no vote, no amendments allowed, so that you don’t get back into this fight again,” Jordan said.

As is, favored groups are saving billions of dollars a year, worsening the tax burden for everybody else.

Talk about picking winners and losers.

For the editorial board, Phillip Brownlee

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