“Highest sales tax on groceries” – that’s a title states aren’t clamoring to win.
Kansas is way up there, though, having further secured its claim in the last legislative session. Lawmakers raised the state sales tax to fill a giant revenue shortfall, but they failed to address a pesky matter: Kansas is one of only seven states that charge a full sales tax on food items.
Thirty-two states and the District of Columbia exempt groceries from sales taxes. Six states, including Missouri, have reduced rates for food items, and five states don’t have sales taxes.
Kansas’ elevated tax on groceries doesn’t sit well with groups like KC Healthy Kids. For them, the fight is on, months before the start of the 2016 session, to at least get the tax reduced. And Democratic and Republican legislators are signing on.
A report released this week by the health advocacy group in Kansas City, Kan. – and compiled by Wichita State University – concluded that sales taxes have a “negative economic effect” on rural grocery stores. A report later in the year will address the impact of sales taxes on cities and towns near the state’s border.
Of the states bordering Kansas, only Oklahoma charges its full sales tax on groceries. Missouri has a rate of 1.225 percent, plus local taxes. Nebraska and Colorado exempt groceries from sales taxes.
KC Healthy Kids, an area nonprofit that focuses on nutrition and youths, helped lead the effort in the last session for sales tax relief on groceries, arguing that the tax hurts lower-income households the most.
“Food is not a luxury item,” said Ashley Jones-Wisner, the group’s state policy manager. “It’s not something people can avoid buying.”
The 2015 proposal that had the biggest potential – reducing the tax on food items to 4.9 percent – passed in the Senate but wasn’t part of the House tax plan. The sales tax rate in Sedgwick County is 7.5 percent.
The failure in the last legislative session to provide tax relief at the supermarket disappointed House Democratic leader Tom Burroughs of Kansas City, Kan., who said he has backed the reduction or elimination of grocery sales taxes for years.
“I find this to be one of the most onerous taxes we have on the books for Kansas families,” he said. “I believe there is strong support to address this.”
He will have help from some Republicans, who dominate both chambers in Topeka. Sen. Michael O’Donnell, R-Wichita, was a champion of grocery tax relief in 2015, so much so that he voted against the final tax plan.
“I understood the need to have a tax plan, to balance the budget,” O’Donnell said. “But I wasn’t going to vote for any tax plan with additional revenue burdens on the backs of Kansans who are struggling.”
Rep. Marvin Kleeb, R-Overland Park and chairman of the House tax committee, said the House looked hard at a grocery tax reduction in June but couldn’t work out the numbers. Many of his Republican colleagues want to address the concerns, he said.
“It will get a very serious look next session,” Kleeb said.
Experts tend to agree that sales taxes are regressive because people with lower incomes spend more of their money on items subject to the tax. But some argue against grocery exemptions and in favor of sales tax credits or rebate tax programs targeted for lower-income people.
Kansas has an income tax credit program for lower-income households, but it’s been criticized. An earlier rebate program was repealed in 2012, and the replacement plan is smaller and benefits only those who owe income taxes. The paperwork keeps many from taking advantage of the program, critics say.
Actually, O’Donnell said, one of the selling points is that a reduction in sales taxes on groceries would apply to everyone yet provide the most help to lower-income families.
“I thought it was a great place for the two parties to come together,” he said.
State officials estimate that a 1 percent reduction in the sales tax on groceries this fiscal year would result in about $66 million less revenue to the state.
Lawmakers acknowledged that any tax reduction would have to be scrutinized. After scouring the budgets of state agencies and departments, Shawn Sullivan, budget director for Gov. Sam Brownback, last week announced about $63 million in savings to bump up the state’s reserve fund.
State revenue took a beating after income taxes were cut or eliminated for more than 300,000 business owners and farmers. At Brownback’s urging, lawmakers increased sales and cigarette taxes to make up the shortfall, projected in the hundreds of millions.
Kleeb cautioned that sales tax revenue in Kansas and around the country is down. And O’Donnell lamented that legislators missed a big opportunity to address grocery taxes last session when new taxes were being considered.
“We are going to talk about lowering the sales tax on food and coming up with other ways to offset the cost,” O’Donnell said. “I don’t know what the answers are today, but the issue is not dead.”
The KC Healthy Kids report, conducted by the Kansas Public Finance Center at WSU, said that although the effect is small, the sales tax on groceries “reduces the economic activity of grocery stores” in rural counties.
The tax also results in shoppers choosing lower-quality, less-expensive food items, the report said.
“When prices are high, the two items left on the shelf are milk and fruit,” Jones-Wisner said, “two things obviously important to a balanced diet.”