Rep. Dave Baker, second from left, argues in favor of the immediate elimination of the state sales tax on food during a hearing Wednesday of the House Taxation Committee at the Statehouse in Topeka. (Kansas Reflector screen capture from Kansas Legislature YouTube channel)
TOPEKA — Family and child advocates gave lawmakers plenty of reasons to eliminate the tax burden on food during a hearing Wednesday in the House on competing sales tax reforms.
The sales tax is regressive, the pandemic exacerbated food insecurity for the state’s most economically challenged families, neighboring states offer lower tax burdens, and military veterans are reluctant to settle in Kansas in part because the 6.5% sales tax applies to food.
Rep. Dave Baker, a Republican and former grocery store operator from Council Grove, offered another reason. Grocery stores, he said, are struggling to compete with senior centers and schools that benefit from subsidized food programs.
The House Taxation Committee is considering House Bill 2711, which would slightly reduce the overall sales tax and gradually lower the tax on food, and House Bill 2720, which would entirely eliminate the sales tax on food on Aug. 1. Debate centered on whether the state can afford to take the food tax to 0% now that the Legislature has dangled a billion-dollar carrot in front of a mystery company that promises thousands of factory jobs.
“I think now is the time to take it to zero,” Baker said. “You know, in my days in the grocery business, one of the most frustrating things for me was the people who came in and competed with me with those government programs, whether it was the senior center who got commodities, whether it was the school that got commodities. And now this last summer, we had truckloads of groceries show up, no income requirements (or) anything, just come on down and free food.
“You know, that’s pretty tough when you’re in business trying to compete against the government coming in and giving away free food. So sales tax on groceries, I think it’s time to take it off. It’s a competitive situation. It’s a win for everybody.”
The immediate elimination of the sales tax on food would reduce state revenues by $402.5 million in the first year, including a $65 million hit to the highway fund. The plan is expected to reduce revenues by $492.2 million and $501.5 million in the next two years.
The legislation as drafted would define food as any item that is also eligible under guidelines for the federal Supplemental Nutrition Assistance Program, which could violate the terms of a multi-state compact. If Kansas were to lose membership in the compact, the state would lose more than $60.4 million in annual revenue from sales in other states.
Both plans would allow local governments and Washburn University to continue applying their sales tax to food.
Rep. Adam Smith, a Republican from Weskan who serves as chairman of the tax panel, proposed a gradual reduction in the sales tax on food, based on the state’s cash reserves.
His plan would immediately reduce the state sales tax rate from 6.5% to 6.3% and lower the sales tax on food to 3.5% as of July 1. The sales tax on food would continue to drop every year if the Budget Stabilization Fund holds at least $100 million. Once the rate reaches 0%, it would stay there permanently. The earliest point it would reach 0% is Jan. 1, 2026.
Smith’s plan would lower tax collections for the general fund by $336.2 million in the first year, but add $2.7 million to the highway fund by recalculating how the tax is divided between the two funds. In future years, the plan is expected to lower revenues by $437.8 million and $540.3 million.
Under Smith’s proposal, food and ingredients are defined as substances that are sold for ingestion or chewing by humans and consumed for their taste or nutritional value. The tax would still apply to alcohol, bottled water, candy, dietary supplements, vending machines, soft drinks, tobacco and food served at restaurants.
Revenue estimates for both plans are based on the assumption that 15% of the state’s sales tax collections come from food purchases.
Smith said the gradual reduction is the responsible approach. He recalled the dire financial situation the state faced in 2017, when lawmakers overturned former Gov. Sam Brownback’s tax experiment and began to restore funding cuts to public schools.
“I don’t know how many hours I spent in this room, trying to fix the tax problem and the K-12 budget problem, and I don’t want to go back there,” Smith said. “That’s the only reason I’m trying to be cautious on moving forward.”
Rep. Stephanie Clayton, D-Overland Park, questioned whether the sales tax on food would ever be lowered under Smith’s proposal. The chairman acknowledged the Budget Stabilization Fund has never held $100 million. The last deposit was $82 million, Smith, said, which was used a year later.
“I have a teenage boy in my house, and I spend like $600 a month on groceries,” Clayton said.
Clayton also challenged Emily Fetsch, of Kansas Action for Children, to explain why the organization now favors the gradual reduction instead of an immediate elimination of the sales tax on food.
Fetsch told lawmakers the organization is concerned about “unknown variables” associated with the tax incentives offered to a secret business project in legislation passed earlier this session. Gov. Laura Kelly asked the Legislature to support the potential boon to the state’s economy, but the impact of the bipartisan tax deal wasn’t included in her proposed budget.
“The gradual reduction right now, I think, is kind of the most responsible path forward,” Fetsch said.
Clayton asked Fetsch to describe KAC. Fetsch told her it the organization advocates for children and families.
“So are you an advocacy organization that’s in favor of balancing the budget or helping families?” Clayton said.
When the Legislature struggles to balance the budget, Fetsch said, “the people that feel the pinch are low-income families.”
“I think it’s really important to give families help putting food on the table, but I also am very worried about setting up our state to potentially be in another situation where budget cuts are going to hurt low-income families the most,” Fetsch said.
Clayton interrupted her.
“Excuse me,” Clayton said. “You can say then that along with opposing any economic development incentives or any spending ever or any ratcheting down of the food sales tax, that you would oppose anything that puts the budget in any sort of danger at all, correct?”
“I’m not sure I understand your question,” Fetsch said.
Clayton turned her attention to the committee members.
“We have a great deal of unknown variables,” Clayton said. “We could be at nuclear war for, you know, who knows. All kinds of different things can happen. I think that it is appropriate for organizations who are advocating for certain things to focus on those things and not to speculate. Very disappointed.”
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