Tax proposal would affect nearly everyone

TOPEKA — The sales tax could decrease and the corporate income tax would be eliminated under a plan pitched Thursday by state Sen. Dick Kelsey. Some groups including churches, coin operated laundries and nonprofit exercise facilities would no longer be exempt from sales tax.

Kelsey said passing the massive tax overhaul will take political courage. Some of his ideas — such as eliminating the sales tax exemption for churches and groups such as the Girl Scouts — were proposed in the 2010 session but met with fierce resistance before being voted down.

But in his testimony to a legislative committee, the Goddard Republican compared Kansas' sales tax structure to a house that had been added to erratically throughout the years.

"It's an all right home, it functions. You can live in it, but it is not really like a home that has been designed to do what we do best and live," he told the Joint Committee on Assessment and Taxation.

Just eliminating corporate income tax and the recent sales tax increase would reduce state coffers almost $600 million — $255 million from corporate income tax and $315 million from the three year, 1 percent sales tax increase that went into effect July 1.

To offset those decreases, Kelsey proposed eliminating many of the sales tax exemptions the state has granted and imposing the sales tax on professional services such as engineering and public accounting.

His plan would also eliminate a 1970s-era state sales tax exemption for utilities which could generate about $140 million, plus sales tax exemptions for nonprofits including the Girl Scouts and their cookies, churches and health clubs such as the YMCA.

He called for Kansas to stop collecting sales tax on food purchases, although meals bought at restaurants would still be taxed.

Services provided by doctors and prescription drugs would remain tax exempt.

Kelsey estimated that his proposal would generate about $837.6 million for the state. Some of that money could be used to reduce the state individual income tax, he said.

It isn't fair, Kelsey said, that someone who exercises at a private health club pays a sales tax on their membership while someone who goes to a nonprofit such as the YMCA does not have to pay the same tax.

The changes would broaden the tax base, meaning that while everyone paid into the system, overall tax rates would go down.

Revenue Secretary Joan Wagnon told the committee she had been working with Kelsey on his proposal. While Kansas would lose money by eliminating the corporate income tax, the move would help attract businesses to Kansas, she said. That happened when South Dakota eliminated its taxes on corporations, she said.

She also praised broadening the state's sales tax base by eliminating exemptions, an idea that Wagnon pushed during the 2010 session, but which lawmakers ultimately rejected.

"His numbers are accurate and we think his approach is appropriate," she said.

Another portion of Kelsey's proposal, taxing professional services, generated concern from those who generally support eliminating or reducing taxes.

For the past two years, one part of the Kansas Chamber of Commerce's legislative agenda has been elimination the corporate income tax, said lobbyist Kent Eckles.

While that part of Kelsey's proposal was appealing, Eckles said, there would be concerns about plans to tax professional services.

Many of the chamber's members are involved in groups that would be impacted by the new tax, he noted.

"When they hear we are going to tax services, they get jumpy," he said.

The chamber would have to examine the proposal and talk to its members before deciding whether to endorse the plan, he said.