TOPEKA — Governor Laura Kelly has pledged to sign a bill approved by the Legislative Assembly on Thursday phasing out the state’s 6.5% grocery sales tax by January 2025.
Kelly and Democratic lawmakers pushed for an immediate end to the state sales tax on food purchases, but Republican leaders in the House and Senate held firm to a staircase plan that gave lawmakers the ability to change strategy in response to economic downturns.
The measure passed unanimously by the Senate and overwhelmingly in the House would make no changes to the state sales tax on groceries in 2022. It would initiate the adjustment of the rate of the state food sales tax on January 1, 2023, with a reduction to 4%. It would drop to 2% on January 1, 2024 and zero on January 1, 2025. Local sales tax rates on grocery purchases would not be changed by Bill 2106.
“Make no mistake, today’s action is a win for every Kansan,” Kelly said. “Eliminating the state food tax will bring financial relief to everyone, and this bill is a good first step.”
The governor reiterated his recommendation to the 2022 Legislature to consider a bill July 1 to completely remove the state sales tax on groceries. She said the prices of basic necessities such as groceries were rising due to inflationary pressures and the legislature may pass an alternative bill when members return to the Capitol on May 23.
House Majority Leader Dan Hawkins, R-Wichita, said tax reduction proposals must be weighed carefully and the goal of reducing sales tax on groceries does not exception. He stuck to that philosophy despite passing a new state budget that would leave a projected $1 billion in the treasury in July 2023.
“You always have to hedge maybe a little bit on the conservative side,” Hawkins said. “Because bad things can happen. We’ve had downturns in our economy before and we will have more, and they’re probably not far away. The way it’s structured allows us to be on the safe side.
Representative John Carmichael, a Democrat from Wichita, proposed a motion, which failed, that would have sent the bill back for another round of negotiations between members of the House and Senate. He wanted the bill amended to dissolve the state food sales tax in July.
He said rising consumer costs in the United States needed quick help for Kansans, arguing that “families cannot afford to buy food. People on fixed incomes cannot afford to buy food.
Under the bill, the definition of food and food ingredients that would be eligible for the sales tax reduction included groceries as well as bottled water, candies, dietary supplements, soft drinks and foods sold in vending machines. This would exclude alcoholic beverages, tobacco and most prepared foods that would be offered by restaurants.
The financial implications for the Kansas State Treasury would be significant. In fiscal year 2023, which begins July 1 and ends June 30, 2023, lowering the food sales tax to 4% would reduce state revenue by $77 million. Revenue declines would increase as the rate declines, resulting in projected revenue declines of $252 million in fiscal year 2024, $411 million in fiscal year 2025, and $500 million in fiscal year 2024. during the 2026 financial year.
Ending the state’s share of the grocery sales tax in 2022 would reduce state revenue by a projected $455 million.
“They need relief now,” said House Minority Leader Tom Sawyer, D-Wichita. “We must not make them wait until 2023. Zero relief in 2022 is unacceptable.”
Rep. Adam Smith, a Weskan Republican and chairman of the House Taxation Committee, said the Kansas Department of Revenue and retailers in the state could not respond to the sweeping change in sales tax policy by July. He said it was appropriate to delay the first rate change until January.
In 2012, Governor Sam Brownback signed a bill that aggressively cut state income tax rates. A soft economy and high levels of government spending led to years of government revenue shortfalls. In 2015, the state general sales tax on groceries was increased to 6.5% in an effort to balance the budget. The Brownback tax strategy was repealed by the GOP-controlled House and Senate in 2017.
Smith reminded colleagues that the Legislative Assembly in 2019 passed a bill containing a package of tax reforms, including a reduction in the food sales tax. This tax legislation would have reduced state tax revenue by $500 million over three years and was vetoed by Kelly. She said it would be irresponsible to cut taxes until the state’s fiscal health stabilizes and guaranteed funding is available for basic government services.
Derek Schmidt, state attorney general and GOP gubernatorial candidate, said he welcomes the Legislature’s bipartisan response to state demands for the reduction or elimination of sales tax on groceries.
“The state food tax should have been put on the path to elimination in 2019, but Governor Kelly’s veto got in the way. It’s a second chance to get it right,” Schmidt said.