How would higher tax affect business, consumers?

Kansas already has a higher sales tax rate than most of its neighboring states, leading some to voice fears that people might shop elsewhere if it goes any higher.

But, one day after Gov. Mark Parkinson proposed doing exactly that, Wichita business owners weren't certain what it might mean for them.

A sales tax is less obnoxious than other taxes, said Tim Witsman, president of the Wichita Independent Business Association, a small-business advocacy group. It would hit some businesses harder than others.

"But any discussion even talking about increasing taxes tends to inhibit investment," Witsman said. "That's my real worry.

"Whenever there's political uncertainly, business investment goes down. And when business investment tanks, we all take a hit."

Parkinson on Monday proposed a three-year, 1-percentage point sales tax increase to help the budget deal with a $400 million deficit. After three years, 0.2 percent of the tax would remain to fund highways.

He also proposed increasing cigarette taxes by 55 cents a pack and quadrupling the tax on other tobacco products.

Under the proposal, Sedgwick County's 6.3 percent sales tax would rise to 7.3 percent, which is what it was for the 30 months from July 2005 to Dec. 31, 2007, when the sales tax to finance Intrust Bank Arena was in effect.

But the economy was different then.

"Back then, things were fine," said Ron Zerbe, owner of Don's TV and Video Inc. "Today with everything going on, I'd say 'no.' "

Zerbe said everybody in his business would be affected by a higher sales tax.

"People are reluctant to turn loose of their money, much less add a sales tax," he said.

Disposable income

Raising the tax could create an incentive for people to travel to one of the neighboring states with a lower sales tax to buy high-end items such as cars, televisions and electronic equipment, said Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University.

Kansas, with a statewide sales tax of 5.3 percent, is second among neighboring states to Nebraska's 5.5 percent.

Oklahoma's is 4.5 percent, Missouri's 4.225 percent, and Colorado's 2.9 percent.

So it becomes a question of how much sales tax the state would actually capture if they go up, Hill said.

The burden will be larger on people in the middle and lower income range who spend a high percentage of their income on food. People aren't likely to leave the state to shop for groceries, he said.

The average person in the Midwest spends $3,541 a year on food for the home and pays $188 in sales tax on the food, according to Bureau of Labor statistics.

If the tax statewide goes up to 6.3 percent, that tax would climb to $223 a year, an increase of $35.

Hill said he agrees with those who say the sales tax increase would be regressive and hurt disposable income.

"It's going to eat on the disposable income on middle and lower class. They're going to have less money to spend," he said.

Live within budget

Dawson Grimsley, president of Davis-Moore Auto Group, said his business wouldn't be hurt by a sales tax increase. Anybody who buys a car out of state has to come back and pay the applicable Kansas state sales tax, he said. Still, Grimsley is against the idea.

"I think our state government ought to be just like we are," he said. "We don't get a chance to raise our sales taxes or raise our budgets. They ought to live within their budgets."

Others agree.

"I think the way the economy is, adding taxes is the wrong thing. We're all cutting back, tightening our budgets, and I think the governor should do the same thing." said J.V. Johnston, co-owner and president of Johnston's Clothiers.

His business probably wouldn't be significantly affected because he has high-end customers who aren't likely to feel the pinch of a 1 percentage point increase.

"But I have a lot of sympathy for the people who are struggling and just trying to make it," Johnston said.

Bob Razook, owner of Razook's Furniture, said the tax would be a good thing. His business wouldn't be hurt much, he said, and "We're going to have to raise some money somehow," he said. "I don't know of a better way to do it."

"It seems like when we raised the sales tax on the arena there was angst for a while then everybody sort of forgot about it."

Effect on education

Jill Docking, chairwoman of the Kansas Board of Regents, spoke to the Wichita Independent Business Association on Tuesday about the importance of funding higher education. Parkinson said he would boost education funding if the sales tax increase passes.

Class sizes at the state's universities and community colleges are larger than ever, Docking said, and funding is down. That means more problems for high-risk students, such as those for whom English is a second language, she said.

She also fears potentially underfunding specialty programs or research programs such as those at Wichita State University's National Institute for Aviation Research.

"I'm not whining," Docking said. "I'm just telling you the reality of the cost to our state of not thinking beyond this year.... We are now at that point in the discussion: What's it mean to us?"

Bob Aldrich, vice president of Windy City Railway Services, questioned Docking after her presentation: "What's the magic number" for education funding?

"That depends," she said. "I think we have enough, probably, to do an adequate job.... But how much is enough to be excellent?"

"Sure," Aldrich responded. "But at what cost?"

That's a debate education advocates and business leaders are sure to continue in coming weeks as they debate the tax increase.

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