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.
