Kansas bills eliminating food sales tax offer different approaches to addressing food insecurity
Haley Kottler, with Kansas Appleseed, said a 0% sales tax rate on food and groceries would relieve added strain on food insecure Kansans incurred during or due to the pandemic. (Screen capture of Kansas Legislature YouTube)
TOPEKA — A pair of bills aimed at eliminating the food sales tax on food and groceries in Kansas will help reduce rising food insecurity and aid families in getting food on the table, supporters say.
House Bill 2484 would exempt food and food ingredients, including products sold at restaurants, from state retail sales and compensation use tax beginning Jan. 1, 2023. The bill would not include alcoholic beverages or tobacco.
The second measure under consideration Tuesday, House Bill 2487, would exempt Kansans beginning July 1. The measure excludes prepared food from the exemption, unlike the first bill, and provides an exemption for sales of farm products sold at farmers’ markets.
Haley Kottler, thriving campaign director for Kansas Appleseed, said COVID-19 has exacerbated many food insecurity issues Kansas families already faced. She said the average family in need would notice savings of about $500 a year through either measure.
“If we want to see Kansas thrive, we need to address the rise in food insecurity any way that we can,” Kottler told legislators on the House Taxation Committee, led by Rep. Adam Smith, R-Weskan. “A 0% sales tax rate food and food ingredient policy solution will directly help all Kansans experiencing hunger and those who are not, while benefiting the Kansas economy.”
The renewed initiative to cut the food sales tax comes amid a budget surplus and after Gov, Laura Kelly and Attorney General Derek Schmidt each proposed either elimination or reduction of the tax. The governor has indicated she would sign the measure once it reaches her desk, if it is a clean bill without other tax breaks.
In 2019, the governor vetoed a pair of bills that would have gradually lowered sales tax down because they tied the measure to income tax breaks Kelly regarded as fiscally irresponsible.
The first proposal, House Bill 2484, would reduce state revenues by $319.8 million in 2023, $782.0 million in 2024 and $796.9 million in FY 2025, according to estimates from the Department of Revenue. The department estimated House Bill 2487 to carry a higher fiscal impact in the first year before leveling off, with $442.9 million in reduced revenue for 2023, $492.2 million in 2024 and $501.6 million in 2025.
Both plans would repeal the state’s non-refundable food tax credit available to certain Kansas residents with a qualifying income of less than $30,615. Revenue estimates suggest repealing the credit would save $10.3 million each year.
John Jenks, public policy director for The Greater Kansas City Chamber of Commerce, said Kansans are feeling the weight of one of the highest sales tax rates in the country and deserve relief.
“The Kansans that feel the greatest impact on this type of tax are often lower-income and underserved, as sales taxes, and especially a tax on food and groceries, is a regressive tax that disproportionately affects lower-income citizens,” Jenks said. “By reducing and eventually eliminating the state sales tax on food and groceries, the state of Kansas can help put money back in the pockets of Kansans to spend on other things and services throughout the state.”
While the KC Chamber approved of the goal, it urged a phased-in approach to be mindful of how quickly the state’s budget surplus can disappear and to allow all stakeholders time to adapt.
One notable difference between the two measures is the effect on local sales tax. While House Bill 2484 would not change local finances, the inclusion of a farmers market sales tax exemption in House Bill 2487 would decrease local sales tax revenue.
Still, the Kansas Association of Counties indicated that eliminating the state sales tax on food could increase local sales tax revenues used in part to finance local governments, especially in border counties and communities where many will cross state lines for cheaper groceries. Jay Hall, deputy director for the association, spoke in support of 2484 because it leaves the local portion of the sales tax untouched.
“We ask that the committee not also reduce the local portion of the tax because counties depend on that revenue,” Hall said. “If we were to reduce those sales taxes for the local portion, which would essentially shift that tax burden to the property tax.”
Another difference between these two measures is the inclusion of prepared food as sales tax exempt present in House Bill 2484. It defines prepared food as food sold heated, a product with two or more food ingredients combined by the seller for sale as a single item, or food sold with utensils provided by the seller.
Scott Schneider, representing the Kansas restaurant and hospitality Association, opposed House Bill 2487 but backed 2484 because it treats all food the same whether it is prepared or unprepared.
“I would encourage you to think about the small towns who no longer have a grocery store,” Schneider said. “People get their food where they can. Should those who have less access to unprepared foods pay more for their breakfast?”
He noted that one-half of every food sale was through a restaurant before the pandemic.
An area of concern for those who testified in opposition or offered a neutral viewpoint was the expected loss of revenue contributing to the state’s highway fund. House Bill 2487 would adjust the distribution of retail sales tax to ensure additional dollars for the highway fund, but the transportation piggybank would still realize revenue losses.
The Kansas Department of Transportation testified against the measures and warned about ramifications if the fund is not whole. Travis Lowe, a lobbyist for Economic Lifelines, a grassroots transportation organization, recommended an amendment to take care of the highway fund.
“The Eisenhower Legacy Transportation Program and its commitment to the state was approved under the assumption of this sustained funding source,” Lowe said. “If there is not an adjustment, the State Highway Fund will experience a large shortfall, undoing all the recent progress made by the Legislature in recent years to suspend the transfers from the State Highway Fund,”
The Kansas Farm Bureau also opposed the bill because food is one of the final sale destinations for agricultural products.
“A retail sales tax system should be designed to tax the ultimate retail sale,” said John Donley, representing the bureau. “It is our fear that the reduction in the retail sales tax of food may be a first step in moving toward a value-added taxing (VAT) system, which we strongly oppose.”
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