Officials eye sales tax exemptions

When Victory in the Valley bought new vehicles to drive cancer patients to treatment, the Wichita nonprofit didn't pay sales tax.

The savings means more gas money for a program that drives about 60,000 miles a year transporting patients, said executive director Diana Thomi.

At one time, the organization would have paid sales tax like everyone else. But a few years ago, lawmakers granted it a specific exemption.

Victory in the Valley's purchases wouldn't generate a lot of sales taxes for the state, but the savings makes a big difference for the program, Thomi said.

Now some state officials are suggesting that tax exemptions — on sales, income and property — mean a loss of millions for the state when it is struggling with declining revenues. Overall, tax cuts and exemptions have cost the state $10.9 billion since 1995, said Kansas Secretary of Revenue Joan Wagnon, a Democrat.

Wagnon has suggested lawmakers put a three-year moratorium on creating new tax exemptions and examine closely who and what the state exempts from taxes.

"It is no secret that prior tax decisions have impacted our current situation," Wagnon said at a recent discussion of tax policy at Washburn University.

Sales tax exemptions, which are most frequently mentioned, cover everything from material purchased to refurbish museums to raw materials used in manufacturing to purchases of livestock. Dozens of nonprofit groups are specifically exempted by the Legislature from paying sales tax.

Sales tax exemptions account for $116 million in lost annual revenue, Wagnon said.

She wants lawmakers to start thinking about exemptions as expenditures, since each takes money from the state's coffers.

But not everyone sees it that way.

"It's money we don't extract from them to begin with," said Rep. Steve Brunk, R- Bel Aire.

It's not an expense for the state, since the money from the exempt programs never goes into state coffers, he said. Plus, programs with specific exemptions can provide a valuable service to the community.

As an example, he pointed to the Sunrise Boundless Playscape at Sedgwick County Park, built using a sales tax exemption for equipment and services.

"All we were doing was making it easier for them to raise funds for a private endeavor that benefited the public," Brunk said.

Exemption a boon

The exemption was a significant boon for the $1.2 million project, said Marlon King, vice president of commercial lending for Intrust Bank and current president of West Sedgwick County-Sunrise Rotary Club, which built the park with the Sunrise Charitable Fund.

He did not have an exact amount of sales tax savings.

The park has wheelchair ramps and other features to make it accessible to children with disabilities.

"This isn't your typical garden variety stuff that you can run down and build a swing set," he said.

Without the exemption, the park's size would have been scaled back, construction would have been delayed or more money would have had to be raised, he said.

"We felt like this was such a beneficial attribute for our community and a need for the community that we felt strongly that we should seek the sales tax exemption," King said.

Sometimes private nonprofit organizations are better suited to meeting the community's need — such as with the park — than government is, Brunk said.

If there is a moratorium on tax exemptions, Brunk suggests the state also put a moratorium on spending increases and examine both closely.

Determining criteria

The 17-page statute on sales tax exemptions includes exemptions for purchases of items from business equipment and machinery to prescriptions.

Removing a lot of those exemptions would put Kansas at an economic disadvantage for creating jobs, said Kent Eckles, vice president for government affairs at the Kansas Chamber of Commerce.

The chamber isn't opposed to a moratorium and studying the state's tax structure, but removing current incentives would only hurt state revenue more, he said. Businesses also are not asking for more exemptions because they know revenue is down.

"We're trying to say, 'Hey, don't hurt us any more by taking away these things,' " he said.

House Assistant Minority Leader Rep. Jim Ward, D-Wichita, said he supported the idea of looking at who got tax exemptions and how.

"The first question looking forward should be, do we have a criteria for deciding who gets an exemption or is it the loudest voice with the best network," he said.

He didn't disagree with the concept of considering tax exemptions — especially for specific nonprofits — as an expenditure but said that rule was easier to apply in an academic discussion.

When groups like the Girl Scouts ask for an exemption for cookie sales, "it's hard to say no," he said.

"Once you say yes to the Girl Scouts, there are a lot of other groups that do as equally good work," he said.

But tax dollars that things like cookie sales or park equipment could have generated would help support equally important programs, such as Meals on Wheels, he said.

The program, which delivers meals to the homebound, receives part of its funding from the state and has seen its budget shrink, Ward said. It also has to justify its budget every year to lawmakers.

Meals on Wheels does have a sales tax exemption for the ingredients it buys to make meals.

Many of the state's tax exemptions were granted with a specific purpose in mind. It would be good to ask if the exemptions are fulfilling their intended purpose, Ward said.

Lawmakers also need to develop guidelines for when and how tax exemptions are granted, he said.

"Without some criteria to balance the public good, it is very difficult and we haven't done a great job of it," he said.

Thomi, of Victory in the Valley, thinks that even if her program gets evaluated, it would keep the sales tax exemption it received a few years ago.

The program, which started in 1983, helps cancer patients with trips to and from treatment and purchases of prescriptions and prostheses. It also has a hospitality center near the Cancer Center of Kansas where patients can relax before going into treatment. Of each dollar raised, 23 cents goes to overhead or salary, she said.

"It seems to me it is a lot less expensive to provide the sales tax exemption than the services groups like this provide," she said.