TOPEKA — Substantive income and sales tax reform in Kansas continued during March to carve new channels in the state revenue stream, officials said.
Adjustments to state retail sales tax policy by ending application of a 6.5% sales tax on grocery items contributed to a $89 million decline in collections during the first three quarters of the fiscal year compared to this point in the previous fiscal year.
The sales tax, and associated compensating use tax, has delivered $2.6 billion to the state during the fiscal year starting July 1.
The Legislature and Gov. Laura Kelly agreed last year to eliminate a personal income tax bracket and lower the highest individual income rate to 4.58% retroactive to Jan. 1, 2024. That was combined with a reduction in the state’s corporate income tax rate from 4% to 3.5% effective Jan. 1, 2024.
The Kansas Department of Revenue reported the state took in $88 million less year-to-date in corporate income taxes than at this juncture one year ago. That decline exceeded projections of state analysts by more than $11 million.
Shrinkage in corporate income tax collections has been eclipsed, however, by the surprise $200 million increase in individual income tax collections through March compared to the previous year. State analysts underestimated growth in individual income tax revenue by $187 million.
Three-fourths into the fiscal year, Kansas state government was more than $110 million up in terms of corporate and individual income tax revenue.
Overall, the Department of Revenue said Kansas received $6.9 billion in revenue from all tax sources in the current fiscal year. That represented a $47 million, or 0.7%, increase from the previous fiscal year. Kansas has taken in $165 million more in tax revenue through the initial nine months of the fiscal year than predicted by state financial analysts.
The consensus revenue group, comprised of individuals from the Department of Revenue, Kansas Department of Administration, Kansas Legislative Research Department as well as economists from University of Kansas, Kansas State University and Wichita State University, scheduled a meeting April 17 to evaluate economic conditions and make changes to state revenue projections.
THE LEGISLATURE sent the governor last week a new state budget that could put Kansas in a $461 million budget hole within three years.
On KCUR’s Up To Date program Monday, Kelly said she was apprehensive about the Republican-led Legislature’s spending plan and compared it to the approach taken by Gov. Sam Brownback more than a decade ago when income taxes were aggressively slashed.
The result was a five-year calamity that prompted state budget cuts and an increase in the statewide sales tax. The Legislature repealed, over Brownback’s objection, much of his tax program in 2017.
“With the budget they’ve passed, we will be way underwater,” Kelly told KCUR.
The governor said the Legislature could modify the budget legislation when it reconvened April 10 or gather for a special session after new state revenue estimates were released.
Kelly vetoed a bill Monday that would have left in place the previous year’s state budget if the Legislature and governor failed to agree on a budget deal.
She said she wouldn’t sanction Senate Bill 14 because it could freeze the budget in a manner not contemplated “through periods of war, famine, pandemic, recession, the Dust Bowl and even the Great Depression.”
