Kansans likely to get food tax relief in 2020, but will it be rate cut or refund?

The Kansas sales tax on food remains one of the highest in the nation, inflating grocery bills across the state and costing even thrifty families hundreds of additional dollars annually.

But a year after Gov. Laura Kelly campaigned on lowering the burden it creates, a tax reform panel she controls is leaning toward a plan to retain the high rate—at least 6.5 percent—but offer relief to potentially hundreds of thousands of lower-income individuals.

Kelly’s group is expected to recommend in December that Kansas restore a food sales tax refund program to help offset the cost of groceries, according to interviews with council members and others familiar with the discussions. The state cut the program in 2012.

The approach appears to have Kelly’s backing. In an interview with The Star’s editorial board earlier this month, the Democratic governor said she hopes for action on the tax but cautioned against an across-the-board rate reduction. Lawmakers would have to pass any changes.

If approved, those who qualify for the refund—likely low-income families, people with disabilities and the elderly—would see their tax refunds grow. The size of the refund is unclear, however.

Supporters of the idea contend a refund would help the most vulnerable while costing the state less than a significant rate cut. Tax reform council co-chair Steve Morris said a refund “really helps the folks who need it.”

But the anticipated approach is frustrating some food tax opponents who want a more-expansive rate cut. They say the low-income individuals who need the most help are also the least likely to redeem a refundable rebate.

Cutting the food sales tax rate from 6.5 percent to 5.5 percent would cost the state approximately $60 million in lost revenue. Kansas has a budget surplus of several hundred million dollars, but is currently spending more than it takes in. The extra cash may be quickly used up if Kelly and lawmakers expand Medicaid, increase agency budgets and continue to loosen spending after years of austerity.

“When you look at doing a one-cent reduction in food sales tax across the board, it’s a pretty heavy hit on the state budget. It does almost nothing for individual families,” Kelly said.

Refunds halted in 2012

A family of four with children between six and 11 years old spends about $12,812 a year on a moderate-cost food plan, according to the United States Department of Agriculture. A one-percent savings amounts to $128 a year, or about half a week’s worth of groceries.

Lawmakers debate a cut to the food sales tax rate in some form or fashion nearly every year. The statewide rate is 6.5 percent and with local taxes, it can approach double digits in some cities.

About a dozen states still tax food, several at lower rates than other goods. According to the Washington-based Tax Foundation, only a handful of states – including Kansas – tax food at the same rate as everything else.

Kansas repealed its food sales tax refund program in 2012 to help pay for tax cuts. In the last year it was offered, the refund was available to those who made less than $35,401, were 55 or older, disabled, or living with a dependent under 18.

More than 384,000 people claimed it, costing about $61 million, according to the state Department of Revenue.

“If we have limited funds to spend in the form of tax cuts or tax credits, let’s target them to those who need them the most,” John Wilson, director of Kansas Action for Children and a member of Kelly’s tax reform council, said.

Carl Brewer, a former Wichita mayor and a tax reform council member, said the group looked at an overall rate reduction but that more discussion centered on a refund program. As a practical matter, eliminating the food sales tax entirely is “almost impossible” because it brings in some $400 million for the state each year, he said.

But Beth Low-Smith, vice president of policy at KC Healthy Kids, contends lowering the rate will fuel economic activity. Low-income individuals will more easily afford food and people who make more may spend their savings on other goods and services in Kansas.

The high rate also drives shoppers across state lines, she said. Colorado and Nebraska have no tax on food. Oklahoma charges 4.5 percent, while Missouri taxes at 1.225 percent.

Low-Smith questioned whether a refund program will reach everyone it needs to.

“People who are very poor and have complicated and often pretty difficult lives are people who are less likely actually redeem a rebate on their taxes,” Low-Smith said. “So that approach leaves behind a lot of people who most need to see the sales tax lowered in Kansas.”

Kelly under pressure

The Legislature passed a bill this spring with a provision for using growth in state revenues to gradually reduce the tax rate on food. But Kelly vetoed the measure because it would have also held down down corporate taxes and allowed residents to itemize state income tax returns even if they didn’t itemize on federal forms, a change that would have cost the state tens of millions each year.

Republicans slammed Kelly for the veto and pointed out her campaign pledges to reduce the food tax. In October 2018, Kelly said once the state’s finances are fully stabilized “the first order of business will be to reduce the sales tax on food.” She also said it was “unacceptable” Kansas had one of the highest tax rates on food in the nation.

Kelly didn’t advance measures to lower food sales taxes in 2019, but she’s now pivoting toward the topic. She said she is “hoping” the state will be able to do something in the year ahead.

“We used to have a food sales tax rebate here in the state of Kansas where you target those for whom it would really make a difference and you provided enough relief that it really made a difference in their lives,” Kelly said.

The 2020 election will increase pressure on Kelly and lawmakers to deliver some kind of tax reform. While Kelly isn’t on the ballot, every legislative seat is up for grabs and both Democrats and Republicans will be looking for accomplishments they can show voters back home.

Republicans may be open to restoring the refund. Rep. Steven Johnson, an Assaria Republican who chairs the House Tax Committee, said a refund is a “much more targeted way” to deliver help with food expenses.

“If we only reduce food (tax) by one percent it’s a talking point … but the impact we might desire may still not be there,” he said.

This story was originally published November 28, 2019 at 5:00 AM.