As the Legislature continues to meet today, voting down a tax plan this morning that would raise cigarette and sales tax, and expected to consider another budget bill, this is a column yesterday from State Sen. Steve Fitzgerald.
Sen. Fitzgerald, R-Leavenworth, represents the 5th District, which includes the Piper area of Wyandotte County.
The Legislature in overtime
The Senate passed a huge change in tax policy, which begins to remove tax favors that cause the rest of us to bear the burden. This is called broadening the tax base. It makes sense from a fairness perspective and it increases the revenue available from consumption – allowing further reductions, and ultimately elimination, of the income tax.
The plan also requires property tax increases in excess of the rate of inflation to be voted on by the people in a regularly scheduled election. This is the ultimate in local control, requiring the people to decide on property tax increases.
Other provisions include a requirement to have a social security number for at least a full year in order to be eligible for tax credits. Sort of makes sense for people to pay into something before taking out based on being a taxpayer. It also expands the corporate scholarship that allows a modicum of school choice for parents of school children.
Predictably, the plan has drawn a lot of attention and fire. It is getting credit – mostly blame – for what it does and a lot of what it does not do. One of the main misunderstandings is the removal of the sales tax credits. The basic idea is to sunset these tax favors in four years and put in place a commission to review and recommend disposition of appeals. There are a number that will not be sunset, such as charitable organizations, materiel in process, agricultural items, etc.
Senate conservatives crafted this plan to achieve strategic gains for more limited government; broader, consumption based taxes that enable continued reduction of income taxes; improvement in school choice; and a reduction in the sales tax on food.
There are parts that helped to get the votes and pay the bill. Increasing sales tax is rightly questioned. It brings the general sales tax from the current 6.15% to 6.55%. This is an increase. However, there is an offsetting reduction in sales tax on food to 4.95%, a very substantial decrease. Consider that one can normally avoid sales tax by not buying things, but everyone needs food. The poor, especially, are benefited by this change and the rich, who I notice buy lots of things, pay more. Seems fair to me. I do not like any tax but a sales tax is more straightforward.
The removal of sales tax exemptions increases the number of those paying for the cost of government, making the burden on the rest more reasonable. However, it also is being wildly misrepresented to include tax on utilities, etc. Again, each exemption is to be reviewed by the commission and recommended to the legislature before being sunset in three years. The alternative is for the taxpayer to continue forever paying for hundreds of tax favors that have been granted decades ago for reasons we no longer know or understand.
Property tax is finally brought under control. The plan allows increases in property tax by cities and counties up to the rate of inflation without a vote of the people, but beyond that the commissioners must put it on a regularly scheduled ballot.
It does increase taxes on cigarettes, not to the extent that was originally proposed, but not on alcohol. I dislike and opposed this increase but found it necessary to agree to a fifty cent a pack increase to get enough votes and it helps to bring in more help for the KU Med cancer center. This is about one third of the originally proposed tax increase on cigarettes.
This conference committee report that the House offered and the Senate voted to accept is currently backed before the House for final approval. They are very reluctant to vote for it because of the loud objections from those who dislike one or the other part of the plan.
Unfortunately, it is unlikely that whatever they do vote for will be much of an improvement and the strategic changes in sales tax exemptions, the lowering of food tax, the establishment of voter control over property tax, the increase in school choice, and other significant policy changes will most likely be lost.
They might be able to get some cuts to the budget but those will probably be to agencies that have been starved for years to feed the education budget. Cutting the education budget will be very difficult and unlikely.
Frequently asked questions about HB 2109
HB 2109 brings financial stability to our state while providing income, property and food sales tax relief for all Kansas. Additionally, the measure calls upon the legislature to re-evaluate numerous sales tax exemptions by 2019.
What does the bill do to the state sales tax?
HB 2109 enhances the General Sales tax from 6.15 to 6.55. However, on July 1st, 2016, the sales tax on food drops to 4.95%, thereby lowering the effective sales tax rate for an average family. This will provide much needed relief for all Kansans, particularly for the less fortunate and seniors on a fixed income.
It should also be noted that if this bill were to become law and the food sales tax is at a separate rate than that of the general sales tax, it is hard to imagine the sales tax on food will be increase in the future.
Why wait a whole year to lower the food sales tax?
The answer: In order to give retailers the time necessary arrangements for the new, bifurcated sales tax on food, Senators felt pushing back the enactment date to July 1st of 2016 was appropriate.
Is the food sales tax rebate removed under 2109?
Yes. However, due to the drop in sales tax on food from 6.15% to 4.95%, all Kansans will see relief and this defeats the purpose of the rebate.
What does this bill do to provide property tax relief?
Generally speaking, HB 2109 would require local municipalities to receive voter approval for any property tax increase that exceeds the rate of inflation starting. The measure would take effect in 2017. According to the Kansas Realtors Association, if this provision had been law from 1997 to 2013, this could have prevented up to $5.3 billion in property tax increases on Kansas property owners. HB 2109 will continue to make government more transparent by allowing the voters the opportunity to vote on property tax increases.
How does this proposal provide income tax relief for Kansas tax payers?
In order to continue down the path to making Kansas a “Zero Income Tax State,” HB 2109 includes a provision to buy down state income taxes as state revenue increases (commonly referred to as a “ratchet”). Starting in 2017, with some exceptions, if state revenues increase 3% over the previous year, excess revenue will be used to buy down the top and bottom income tax rates on a dollar for dollar match.
Why does 2109 Sunset Exemptions in 2019?
In 2011 Kansas Legislative Post-Audit recommended a sunset of certain exemptions. The goal is to not simply eliminate these exemptions, but with the billions of dollars steered away from the general tax base, many Senators felt it was prudent to heed In order to follow through with this recommendation. HB 2109 calls for a commission to re-evaluate said exemptions set to sunset in 2019.
What tax exemptions will not sunset with this bill?
The following tax exemptions will not sunset in December 2019:
Churches/Religious Organizations
Business to Business Transactions
Agriculture Machinery and Equipment
Certain Health Care related purchases including: prescription drugs, insulin, prosthetic or orthopedic appliances prescribed by a doctor, medical supplies and equipment purchased by nonprofits, and educational materials.
Why were certain exemptions not included in the 2019 sunset provision?
The exemption provision was designed after a study conducted by the Division of Kansas Legislative Post-Audit (which is a research and auditing arms of the Kansas State Government). This reputable study examined and suggested that certain exemptions not be sunset due to their potential impact on the Kansas economy.
What does the Tax Commission entail?
HB 2109 establishes the Tax Study Commission that over the next four years will thoughtfully and carefully review the state’s tax exemptions. The bi-partisan commission will be made up of Senators. Members of organizations that benefit from tax exemptions would be able to come before the commission to discuss their status. Many envision that the vast majority of exemptions will be continued. However, extensive study is needed.
Will the exemptions on sales tax for rent and utilities sunset in 2019?
No. They will not sunset in 2019 because under Kansas statutes they are not actually exempted. Kansas levies a 0% tax on those items and will continue to do so now and into the future.
Did the Senate enact a school voucher program in HB 2109?
There are no school vouchers in HB 2109. There is, however, a technical fix to an already existing tax credit scholarship program. The original program allows corporate sponsors the ability to set up a scholarship fund for the purposes of helping low-income students escape “failing schools,” as designated by the Kansas Department of Education. The scholarship program can be used to pay for a students’ tuition at a limited number of private schools. Under 2109, the language of the original program is updated in order to allow that private schools do not charge tuition needy students.