TOPEKA — One of two Kansas bills eliminating the state sales tax on food and groceries raised concerns in a Senate committee Tuesday over what potential hits to the state highway fund and local and county economies mean for the long-term viability of the tax cut.
Senate Bill 339 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.
Supporters of the measure say this action will help Kansas families in need put food on the table, but members of the Senate Assessment and Taxation Committee remained concerned about differences between this measure and a competing bill that would eliminate the food tax in July.
For example, Emily Fetsch, director of fiscal policy at Kansas Action for Children, said the bill could unintentionally leave the state highway fund at a disadvantage, something the second measure — set for consideration by the Senate panel Wednesday — attempts to address. She also was wary of the inclusion of restaurants and prepared foods in Senate Bill 339.
“This contributes to a $300 million difference between the two bills in fiscal year 2024, and we really want this elimination of food sales tax to be sustainable,” Fetsch said in neutral testimony on the measure. “We urge you to limit the legislation to just groceries. The inclusion of restaurants would make Kansas a national outlier, as other states don’t really have this inclusion.”
The proposal laid out in Senate Bill 339 would reduce state revenue by $319.8 million in 2023, $782 million in 2024 and $796.9 million in FY 2025, according to estimates from the Department of Revenue. The measure would repeal the state’s nonrefundable food tax credit available to certain Kansas residents with a qualifying income of less than $30,615, which revenue estimates indicate would save $10.3 million each year.
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 the food sales tax because they tied the measure to income tax breaks Kelly regarded as fiscally irresponsible.
While Senate Bill 339 is not expected to have a fiscal impact on local governments, county representatives and legislators were wary of what it could mean if the bill did end up decreasing local revenue.
“It came up when legislators met with the State Board of Education, this understanding that as we reduce the pie of revenues coming in, that means we are cutting what goes to K-12,” Sen. Molly Baumgardner said. “So it makes the other slices of the pie for all of the other agencies, including DCF.”
The second option, Senate Bill 342, would include a farmers market sales tax exemption, which would decrease local sales tax revenue. A representative of the Kansas Association of Counties requested lawmakers carefully consider the potential effects on local and county governments before they act.
John McCormick, president and CEO of the Kansas Retail Grocers Association, said the measure could increase local tax revenues used in part to finance local governments, especially in border counties and communities where many will cross state lines for cheaper groceries.
“Lowering the food sales tax in the state of Kansas will help my retailers that are up on the border of Nebraska, on the border of Colorado on the border of Missouri,” McCormick said. “We have money leaking out of this state.”
McCormick joined with several others in urging an earlier start date, like July, rather than waiting until January 2023. Moti Rieber, executive director of Kansas Interfaith Action, echoed this desire, reminding legislators of the potential benefit to the state’s concerning food insecurity rate.
“Some people have more of life’s blessings, financial blessings and spend less of their percentage of their income on staples and necessities, whereas people lower down on this socio-economic ladder spend more,” Rieber said. “That’s what makes it a regressive tax. It adds to food insecurity, which is already over 12% in Kansas, making it more difficult for people to put food on the table.”
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