Tobacco and sales tax increases headed to Kansas Senate floor

TOPEKA | Higher sales and tobacco taxes are the key components of a $434 million tax hike package endorsed this morning by the Senate Ways and Means Committee.

The measure goes to the full Senate next week, probably early. If passed, it would represent the largest single tax increase in state history. But it’s likely to undergo some changes when the Senate, and then the House, takes a swing at the bill.

Here are the details:

Sales tax: The state sales tax on food, clothing and most other purchases would go from 5.3 percent to 6.3 starting June 1. This one would raise $365 million in the next fiscal year, which begins July 1.

The tax would be rolled back to 5.6 percent in 2014; the extra .3 would go toward highway projects.

A program offering low-income Kansans tax credits for food purchases would be expanded, slightly, at a cost of $11 million.

Tobacco tax: The tax on a pack of cigarettes would go up 55 cents to $1.34, the national average. This would raise $49 million. Taxes on other tobacco products – chew, dip, cigars, etc – would also go up, raising an additional $13 million.

A federal and state tax deduction offered to certain businesses like software developers, oil and gas producers, food production companies and filmmakers – called a 199 deduction – would be eliminated at the state level. The deduction was created by Congress and since Kansas follows the federal tax code it applied to Kansas as well. This change would raise $17 million. Eighteen other states – though none of Kansas’ neighbors – already have eliminated the state deduction.

Businesses getting the deduction would still qualify for the federal deduction.

The Ways and Means vote to send it on to the full Senate was 7-4.

The total tax package, if passed, would be enough to balance the state’s budget and eliminate the $510 million deficit. But critics worry about the impact of the tax hikes on businesses and families struggling to exit a recession. The proposal is likely to change on the floor. It’s got a long way to go.