OLATHE — Gov. Laura Kelly took a trip to a Hy-Vee store to sign a bipartisan bill Wednesday phasing out over three years the state’s 6.5% sales tax on groceries, but would prefer the Legislature reconsider her proposal to promptly wipe out the state tax on groceries.
The Republican-led Legislature is sitting on a large budget surplus, but has been wary of wholesale deletion of the state’s tax on food July 1 because it would be viewed as a political victory for the Democratic governor and the lost state revenue could haunt lawmakers if the economy fell into recession. The governor has campaigned to “Axe the Food Tax,” which would be popular among consumers grappling with the highest inflation rate in decades.
Instead, the House and Senate overwhelmingly approved a bill that would culminate with repeal of the state’s food sales tax in 2025. The reform wouldn’t alter local sales tax on grocery purchases.
“We are axing the food sales tax once and for all,” Kelly said. “Eliminating the the state sales tax on food is a tax cut that helps every Kansas family. Once fully implemented it will save the average Kansas family hundreds of dollars a year. That is a big deal.”
Under House Bill 2106, the state would lower the state’s sales tax on groceries to 4% on Jan. 1, 2023. It would slide to 2% by Jan. 1, 2024. The tax would be eliminated Jan. 1, 2025. The first phase of the rollback would cost the state $77 million. The second year revenue reduction would be an estimated $252 million, followed by $411 million in 2025.
Kelly referred to the Legislature’s alternative as a “good first step,” because it would deliver savings for every Kansan. She said strong state tax revenue collections in April demonstrated the Legislature could take up the issue May 23 when lawmakers returned to Topeka.
At the Olathe Hy-Vee, a basket of 10 random grocery items, including cheese, strawberries, peanut butter, tuna and cheese, cost $35.50. The full sales tax on the purchase was 9.47% and equated to $3.36. If the 6.5% state sales tax on groceries was deleted, the amount paid in sales tax on this bag of groceries would be $1.05.
The bill signed by Kelly would reduce the state portion of sales tax on food to 4% in January. If that tax rate was applicable at today’s prices, total sales tax on the 10-piece basket of goods would have been $2.47. With a 2% state food sales tax, scheduled to occur in January 2024, the tax on those grocery items would be $1.76.
Derek Schmidt, the attorney general and a candidate for governor in 2022, said the Legislature deserved credit for adopting the bipartisan bill gradually reducing and then eliminating the statewide sales tax on groceries. Kansas currently has the second-highest sales tax on groceries in the nation.
Schmidt criticized Kelly for her veto in 2019 of a bill that included reduction in the state’s food sales tax. If that legislation had been signed by the governor, the state’s food sales tax would stand at 2.9%.
“I’m glad the governor actually signed grocery-tax relief into law this time rather than vetoing it,” Schmidt said.
In 2012, Republican Gov. Sam Brownback signed a bill reducing the state’s income tax rates. His objective was to conduct in Kansas an “experiment” in supply-side economic theory. His goal was to create jobs through elimination of the state’s income tax, assuming tax savings would be plowed into the economy. Sustained high levels of government spending and a weak economy, despite the income tax cut, created years of revenue shortfalls.
In 2015, Brownback signed a bill raising the state’s sales tax applicable to groceries and other goods to 6.5% and increased the state’s tobacco taxes to generate $385 million in new revenue to balance the budget. The Brownback income tax strategy was repealed by the GOP-led House and Senate in 2017 over a Brownback veto.
Kelly vetoed legislation in 2019 a bill that included reduction in the state’s portion of the food sales tax. The governor said her objection was with special-interest tax changes included in that bill. She said most of the tax benefit went to wealthy individuals and businesses while reducing state revenue by $500 million over three years. She said the measure could have created a deficit that compromised core state government services.
“Laura Kelly made the grocery-tax problem worse by voting for the biggest increase in Kansas history, then vetoed a previous repeal and this year strangely spent time and energy running about the state for hatchet-wielding media stunts that accomplished nothing except to promote Laura Kelly,” Schmidt said.
