In all the budget talk lately at the Kansas statehouse, a long-simmering issue has yet to break through: what to do about the state’s high sales tax on groceries.
How about this idea? A constitutional amendment, offered to voters in the November election, to bring state sales taxes on groceries down to zero over three years.
“It’s not a total repeal first thing, because we can’t afford that,” said Sen. Kay Wolf, R-Prairie Village, about the proposal, “but it’s a means to an end to helping people.”
The sales tax on groceries would be reduced in stages, dropping first from the current 6.5 percent to 4 percent beginning July 2017 then to 2 percent in 2018. In July 2019, groceries would be exempted from state sales taxes.
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Sen. Tom Holland, D-Baldwin City, is a sponsor of the proposal along with Wolf and 10 other senators from both parties, including Republican Sen. Michael O’Donnell and Democratic Sen. Oletha Faust-Goudeau of Wichita.
Holland likes that as a constitutional amendment, it would go to the voters. “The people need to weigh in on where Kansas is going with its tax policies,” he said.
Thirty-two states exempt groceries from state sales taxes, and six states charge a reduced state sales tax rate for groceries. Five states don’t have sales taxes. Sales taxes on essentials are considered regressive because they tend to hit lower-income households harder.
In Kansas, the state charges its full state sales tax rate on grocery purchases, a fact that came into sharper focus last year when Gov. Sam Brownback and the Legislature increased the rate from 6.15 to 6.5 percent.
The amendment route isn’t the only idea in the works.
Rep. Marvin Kleeb, an Overland Park Republican and chairman of the House Taxation Committee, plans to hold hearings on a different plan, offered by Rep. Mark Hutton, R-Wichita. It would drop the sales tax on groceries to 2.6 percent while ending the income tax exemption on some 330,000 businesses.
That exemption on certain nonwage business incomes came about as part of Brownback’s overall tax policy, which reduced individual income tax rates with the ultimate goal of eliminating state income taxes.
Both proposals face uphill political battles.
A state constitutional amendment requires two-thirds votes of the House and Senate before it could be offered to voters. The other plan is a statute rather than an amendment, but it would force a shift in tax policy.
“It’ll be problematic,” Kleeb said, “but I think it lays the groundwork for reviewing our overall revenue-generating plan. I’m interested in hearing all the pros and cons.”
In the last legislative session, increases to sales and cigarette taxes were the answer to a yawning budget shortfall. The state has been struggling to balance the budget since income tax cuts were put in place in 2012 and 2013. Brownback said the tax policy would stimulate the economy and job growth.
Critics say that Kansans may be paying the highest grocery taxes in the nation.
Missouri’s state sales tax on groceries is 1.225 percent, and local sales taxes are added to that. Colorado and Nebraska exempt grocery items. Oklahoma’s 4.5 percent state sales tax applies to groceries.
KC Healthy Kids, an area nonprofit that focuses on nutrition and youth, advocated for a reduction in grocery taxes last legislative session and has been highlighting the issue for months.
“With local sales tax on top of the 6.5 percent state tax, you’ve got people paying 9 percent to above 10 percent on sales tax on food in some places,” said Ashley Wisner-Jones, the group’s state policy manager. “Food is not a luxury item.”
The organization teamed with Wichita State University to investigate the impact of the state’s high grocery taxes.
In a series of reports, Wichita State researchers concluded that the tax on groceries puts an unfair burden on low-income Kansans, hurts rural grocery stores and damages economic activity in counties that border other states, suggesting some shoppers may drive across state lines to buy groceries.
Kleeb and others are skeptical that a large number of Kansans are bypassing Johnson County grocery stores to shop in Missouri because of the tax difference.
“There’s no evidence that this is happening,” Kleeb said.
Under the proposed constitutional amendment, the grocery tax would end gradually, but ultimately it would mean a loss of about $350 million in annual revenue.
That’s tough medicine for legislators, who recently approved fixes to balance the fiscal year 2016 and 2017 budgets and soon will deal with court rulings on school funding. The first of two rulings in the Gannon v. Kansas school-funding case could cost the state about $100 million, and a second ruling could be several times that amount.
Still, Wolf is hopeful about the proposed amendment: “I really think it has a shot.”