What would Wichitans pay under new sales tax?

Editor’s note: This story originally used figures for a family making $150,000 instead of $100,000 while explaining sales tax regression.

There’s no doubt that a 1-cent-on-the-dollar sales tax would cost more for voters.

But how much is the big question.

The Eagle has compiled data using 2013 estimates from the Internal Revenue Service to give individuals a better idea of how the tax would affect them.

If passed, the tax, which will be on the November ballot, would vary depending on family income and large purchases.

For example, a family of four with an income between $40,000 and $50,000 would see an estimated increase in sales tax of $161, bringing the estimated total they would spend on sales tax each year to $1,315, using adjusted Internal Revenue Service data.

The median household income in Wichita from 2008 to 2012 was $46,218, according to the U.S. Census Bureau.

The tax would collect nearly $400 million over five years. The money would go toward a new water supply ($250 million), street maintenance and repair ($27.8 million), transit ($39.8 million) and job development ($80 million).

Wichita has never had a city sales tax before, said Shawn Henning, finance director for the city of Wichita. Sedgwick County has a 1-cent sales tax that goes toward roads and the county’s general fund.

Wichitans now pay a 7.15 percent sales tax, which goes to the county and state. The 1-cent tax would raise total sales taxes to 8.15 percent.

“Virtually every family will pay a different amount in sales tax under the city proposal,” Henning said. “It is difficult to estimate, since there are many things that affect the cost per family. … The actual impact on each family could be lower or higher, depending on their income or spending patterns.”

Impact on the poor

Some community members have voiced concern that the tax could have a disproportionate impact on those with lower income, which is also known as “regressive” taxation.

Kansas is worrisome in some ways because of items it doesn’t exempt from sales tax, said Kenneth Kriz, Kansas Regents Distinguished Professor of Public Finance at Hugo Wall School of Urban and Public Affairs at Wichita State University.

For instance, Kansas doesn’t exempt food for preparation at home from the sales tax like some states do in order to avoid disproportionately affecting the poor, Kriz said.

“Since we tax that, we have a sales tax incidence that is already fairly regressive in terms of its effects of hitting lower-income people,” Kriz said.

Kriz points to a 2012 study by the District of Columbia that compares taxes between the district and the largest cities in each state, including Wichita. The study uses data from the Bureau of Labor Statistics’ Consumer Expenditure Survey for a hypothetical family of three in different income brackets in 2012.

It shows the burden is larger for lower incomes.

For example, for a family of three making $25,000, the sales tax burden is about $1,311, or 5.24 percent of the family’s income.

For a family making $50,000, the sales tax burden is $1,608, but about 3.2 percent of the family’s income.

For a family making $100,000, the sales tax burden is $2,664, or just 2.6 percent of the family’s income.

Then for a family making $150,000, the sales tax burden is $3,597, or about 2.3 percent of the family's income.

“I would ask (voters) ‘Do the benefits of what are being proposed seem to outweigh the costs?’ and to be circumspect about both understanding the cost but also understanding the potential benefits – like large economic development effects or large savings on water bills over time. Then it might be worth voting for,” Kriz said.

In previous years, people could claim sales tax as an itemized deduction on their federal tax forms, said Jeannine Koranda, public information officer for the Kansas Department of Revenue. However, that provision has since expired.

Consumer spending

The new tax could lead to marginal changes in consumer spending, particularly on big-ticket items, said Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University.

Higher sales taxes could “motivate people to drive farther because it would have a cost savings,” Hill said.

“The people who might do that are typically more informed and have mobility and ability to drive around to seek some of those cheaper prices and take advantage of that,” he said.

The average customer would not make any changes in the first couple of months of the new tax, Hill said. But over time, especially in lower-income brackets, discretionary spending would be less.

“After rent, electricity and other bills, most consumers put almost all of their money back into retail,” Hill said. “The first couple of months, they won’t realize the loss in income, but over time it would directly affect retail spending because of constrained budgets.”

Hill doesn’t expect the change to be significant, but said it will mean a larger burden for consumers.

Exemptions

The 1-cent sales tax would have the same exemptions that the state has on its sales tax, Henning said.

“Generally, things like certain services, medicine, mortgage payments, rents and insurance would not be taxable,” Henning said.

According to the Kansas Department of Revenue, some items that are exempt from sales tax include food-stamp purchases; Women, Infants, and Children (WIC) program purchases; prescription drugs and insulin; orthopedic appliances; prosthetic devices and mobility equipment; some aircraft sales and parts; and farm machinery and equipment, among other things.

This story was originally published October 8, 2014 at 6:13 AM with the headline "What would Wichitans pay under new sales tax?."