Kelly promises to sign bipartisan bill eliminating state’s sales tax on food by 2025

TOPEKA — Gov. Laura Kelly pledged to sign a bill approved Thursday by the Legislature gradually eliminating the state’s 6.5% sales tax on groceries by January 2025.

Kelly and Democratic legislators pressed for an immediate end to the state’s sales tax to food purchases, but Republican leadership in the House and Senate held fast to a stair-stepped plan that gave lawmakers the ability to modify the strategy in response to economic downturns.

The measure unanimously passed by the Senate and by an overwhelming majority in the House would make no change in the state’s sales tax on groceries in 2022. It would initiate adjustment of the state food sales tax rate on Jan. 1, 2023, with a cut to 4%. It would drop to 2% on Jan. 1, 2024, and to zero on Jan. 1, 2025. Local sales tax rates on grocery purchases wouldn’t be altered by House Bill 2106.

“Make no mistake, today’s action is a win for every single Kansan,” Kelly said. “Eliminating the state tax on food will provide financial relief to everyone, and this bill is a good first step.”

The governor repeated her recommendation to the 2022 Legislature to consider a bill fully eradicating on July 1 the state sales tax on groceries. She said prices for necessities such as groceries were on the rise due to inflationary pressures and the Legislature could take up an alternative bill when members return to the Capitol on May 23.

House Majority Leader Dan Hawkins, R-Wichita, said proposals for lowering taxes had to be carefully weighed and the objective of curtailing sales tax on groceries was no exception. He held to that philosophy despite passage of a new state budget that would leave an anticipated $1 billion in the treasury in July 2023.

“You always have to hedge maybe just a little bit on the conservative side,” Hawkins said. “Because bad things can happen. We’ve had downturns in our economy before and we’ll have them again, and they’re probably not very far away. The way this is structured allows us to be careful.”

Rep. John Carmichael, a Wichita Democrat, offered a motion, which failed, that would have sent the bill back for another round of negotiations between the House and Senate members. He wanted the bill changed to dissolve the state’s food sales tax in July.

He said the rise in U.S. consumer costs necessitated prompt relief for Kansans, arguing “families cannot afford to buy food. People on fixed income cannot afford to buy food.”

Under the bill, the definition of food and food ingredients that would be eligible for the sales tax cut included groceries as well as bottled water, candy, dietary supplements, soft drinks and food sold through vending machines. It would exclude alcoholic beverages, tobacco and most prepared foods that would be offered by restaurants.

The financial implications for Kansas’ state treasury would be significant. In the 2023 fiscal year, which begins July 1 and ends June 30, 2023, lowering the food sales tax to 4% would slice state revenue by $77 million. Drops in revenue would escalate as the rate declined, producing projected revenue shrinkages of $252 million in fiscal year 2024, $411 million fiscal 2025 and $500 million in fiscal year 2026.

Ending the state’s share of the sales tax on groceries in 2022 would deplete state revenues by a projected $455 million.

“They need relief now,” said House Minority Leader Tom Sawyer, D-Wichita. “We shouldn’t make them wait until 2023. Zero relief in 2022 is unacceptable.”

Rep. Adam Smith, the Weskan Republican and chairman of the House Taxation Committee, said the Kansas Department of Revenue and the state’s retailers couldn’t respond to the sweeping sales tax policy change by July. He said it was appropriate to delay the first rate change until January.

In 2012, Gov. Sam Brownback signed a bill that aggressively reduced the state’s income tax rates. A soft economy and high levels of state spending led to years of government revenue shortfalls. In 2015, the state’s general sales tax applicable to groceries was raised to 6.5% in an effort to balance the budget. The Brownback income tax strategy was repealed by the GOP-controlled House and Senate in 2017.

Smith reminded colleagues the Legislature passed in 2019 a bill containing a bundle of tax reforms, including reduction in the food sales tax. That tax legislation would have curtailed state tax revenue by $500 million over three years and was vetoed by Kelly. She said it would be irresponsible to slash taxes until the state’s fiscal health stabilized and guaranteed funding was on hand for core government services.

Derek Schmidt, the state’s attorney general and a GOP candidate for governor, said he welcomed the Legislature’s bipartisan response to requests for reduction or elimination of the state’s portion of sales tax on groceries.

“The state grocery tax should have been put on the path to elimination in 2019, but Governor Kelly’s veto stood in the way. This is a second chance to get it right,” Schmidt said.

Kelly promises to sign bipartisan bill eliminating state’s sales tax on food by 2025

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