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WSU study says Kansas is losing grocery tax revenue to border hopping

A study released this week suggests Kansas’ sales tax on food, in addition to local sales taxes, is causing shoppers to buy groceries across state lines.
A study released this week suggests Kansas’ sales tax on food, in addition to local sales taxes, is causing shoppers to buy groceries across state lines. The Wichita Eagle

Larry Adams lives in northern Kansas, but about half his grocery shopping is done in Nebraska.

“If we need a loaf of bread, we’ll buy it locally,” said Adams, a resident of Logan in rural Phillips County. “But if we’re already going to the doctor in McCook, we’ll stop at Wal-Mart and fill the car up.”

The reason is simple. Food is taxed at 8 percent in Logan. But food isn’t taxed at all in Nebraska, about 25 miles to the north.

A Wichita State University study released this week suggests the state sales tax on food, in addition to local sales taxes, is causing shoppers like Adams to buy groceries across state lines for better deals.

And the study says all those cross-border tax receipts from food sales are costing Kansas border counties and the state’s coffers.

“We’re in a tough situation from every angle right now, and ultimately the consumer is at a disadvantage because we have a high sales tax on food,” said Sen. Michael O’Donnell, R-Wichita. “And the Wichita State study proves that.”

But there’s disagreement about whether so-called “border hopping” is happening en masse.

If we were to lower the sales tax on food, we’ve got to go raise taxes somewhere else. And I doubt that there’s going to be a tremendous appetite, at least right now, to go raise taxes somewhere else.

Rep. Marvin Kleeb, R-Overland Park

The Legislature raised sales taxes on groceries along with other consumer items after last year’s record-length legislative session. Many legislators last summer promised the issue would be revisited this year.

“Kansas hasn’t forgotten about this,” said Ashley Jones-Wisner, state policy manager for KC Healthy Kids, the nonprofit that funded the study. “This is an issue that affects all Kansans at all income levels.”

But it could be an uphill battle for Kansans to get much tax relief at the checkout line.

“If we were to lower the sales tax on food, we’ve got to go raise taxes somewhere else,” said Rep. Marvin Kleeb, R-Overland Park, the House tax committee chairman. “And I doubt that there’s going to be a tremendous appetite, at least right now, to go raise taxes somewhere else.”

A ‘big chunk of change’

The state sales tax is 6.5 percent. Unlike in many other states, there is no exemption or reduction in Kansas on the rate when you buy food.

But the taxes increase when you account for city and countywide sales taxes across the state. The combined state-local sales tax can push 10.5 percent in some areas.

“If you’re a family of four or five or more shopping for food, that’s a big chunk of change,” Jones-Wisner said.

If you’re a family of four or five or more shopping for food, that’s a big chunk of change.

Ashley Jones-Wisner, state policy manager for KC Healthy Kids

She said the sales tax on food is also a health issue for low-income families.

“They’re forced to make some choices, in terms of consumer behavior, and buy things that are cheaper, which are often less nutritious,” Jones-Wisner said.

Nebraska and Colorado don’t charge any sales tax on food. And Missouri, a neighbor to heavily populated Johnson and Wyandotte counties, only taxes 1.225 percent on food.

“That’s a shame,” O’Donnell said. “That’s not something to be proud of.”

6.5% Kansas sales tax rate on food

4.5% Oklahoma sales tax rate on food

1.225% Missouri sales tax rate on food

0% Colorado and Nebraska tax rates on food

The taxes may tempt some people close to the border to hop in their cars and make the trip for groceries, according to a study conducted by WSU’s Hugo Wall School of Public Affairs released earlier this week.

“Bordering counties consumers appear to readily shift their purchases to lower tax jurisdictions,” the study says.

The study found that border counties experience lower growth in food sales per person than counties without a state border. It took into account other factors like the county’s population, economy and demographics.

The study suggests the effect of the sales tax on food is not limited to counties on the state’s four borders.

The report found that a penny difference in sales tax between Kansas counties can drop food sales per person by more than $100 for the more expensive county per year.

For example, the report estimated that Wyandotte County lost $12.9 million in food sales in 2013.

Ken Kriz, a WSU professor and director of the Kansas Public Finance Center, says that means counties could be “cannibalizing” sales tax revenue as they compete against one another for customers.

“Whenever you have a local-option sales tax, it opens it up to competition between counties,” Kriz said. “It’s kind of the race to the bottom.”

The data for the survey is from 2012 and 2013, before last year’s tax increase. The effect is probably greater after the most recent sales tax increases, Kriz said.

Crossing the border

But there’s disagreement about how widespread border hopping for grocery shopping actually is.

“People have an option when they live in a border county,” O’Donnell said. “People are voting with their pocketbook for Missouri groceries, for example, if they can.”

Senate Minority Leader Anthony Hensley, D-Topeka, added that it’s not too uncommon in the Kansas City area.

But Kleeb said the anecdotal evidence might not be much more than that — anecdotes.

Unless you live one or two blocks from a state line, you’re not going to be able to justify whatsoever half a gallon of gas to go across a state line.

Rep. Marvin Kleeb, R-Overland Park

“Unless you live one or two blocks from a state line, you’re not going to be able to justify whatsoever half a gallon of gas to go across a state line,” Kleeb said.

A cross-border grocery run from Wichita into northern Oklahoma probably wouldn’t be worth the gas money, according to an Eagle analysis from last June.

For people like Adams, who lives on the Kansas-Nebraska border, it makes sense to stop for groceries.

“We don’t just go there just to buy groceries, though,” said Adams, who says he and his wife make trips to McCook and Kearney in Nebraska. “If we have a doctor’s appointment or something there, we’ll go shopping at Wal-Mart and buy a lot of things.”

“We’re already going there. That’s what makes it worth it,” Adams said.

A ‘real uphill run’

The state sales tax on food went from 6.15 percent to 6.5 percent on July 1 as part of the tax increases after last year’s legislative session.

There were efforts to spare the rate for food from the broader tax increases, including proposals to reduce it.

At the time, some legislators expressed interest in lowering the rate for food in 2016.

Hensley says it’s a big issue facing low-income Kansans.

“There is no relief for anyone that lives on fixed incomes when they pay sales tax on food,” Hensley said. “Reducing the sales tax or eliminating the sales tax on food is a tax break that helps everybody and particularly helps those on the lower end of the economic ladder.”

“I hope we can hold (legislators) accountable for the promises that they made before the 2016 session,” he added.

There is no relief for anyone that lives on fixed incomes when they pay sales tax on food. Reducing the sales tax or eliminating the sales tax on food is a tax break that helps everybody and particularly helps those on the lower end of the economic ladder.

Sen. Anthony Hensley, D-Topeka

Kleeb says the food sales tax should be lowered “as soon as it’s feasible.” But he has doubts about any change during this legislative session, which comes in an election year.

“I think it’s going to have a real uphill run because nobody wants to talk about a tax increase anywhere, which is what it’s going to take to have a tax decrease on food,” Kleeb said.

O’Donnell agreed.

“I don’t believe it will gain any traction,” he said. “Our budget problems would only be exacerbated by lowering the sales tax on food.”

But Kriz of WSU says the Legislature needs to take into account the effect of cross-border shopping on revenue going to neighboring states.

“This is certainly something legislators should consider when they’re discussing tax policy,” Kriz said. “It isn’t like you can just pull the lever and increase taxes by a dollar and get a dollar worth of effects. It’s not that simple.”

Daniel Salazar: 316-269-6791, @imdanielsalazar

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