WSU study: Food sales tax hurting Kansas

Chance Swaim

Kansas may be losing money to its neighbors.

A study released last month by the Wichita State Hugo Wall School of Public Affairs concluded that Kansas lost $345.6 million in food sales in 2013, resulting in a loss of $21.2 million in sales tax revenue.

The study linked the loss in revenue to cross-border shopping, in which people shop in an adjacent county or state with a lower sales tax rate to make groceries more affordable.

The study focused on food consumption in Kansas counties from 2012 to 2013, when the state’s sales tax was 6.15 percent. To offset a state revenue shortfall last summer, Kansas legislators raised the state sales tax to 6.5 percent.

“The analysis doesn’t take into account the most recent sales tax hikes, meaning the impact is much greater since July 2015, when state lawmakers raised the state sales tax,” a news release from WSU stated. “With that, Kansas’ sales tax on food became the highest in the nation.”

In a statement at the time of the tax plan’s passage, Republican Kansas Gov. Sam Brownback called the increase a “transition from taxes on productivity to consumption-based taxes.”

Kansas counties that border Colorado, Nebraska or Missouri were most affected by tax disparities, the study found. The study also found shoppers will leave one Kansas county for another with a lower sales tax.  

For each 1 percent positive increase in the tax differential measure, which indicates surrounding counties have lower food sales tax, the study found a $101 yearly drop in food sales a person.

Added to state sales tax, local taxes at the county and city-level raise taxes on groceries even higher.

Arwiphawee Srithongrung, professor in the Hugo Wall School, authored the study.

“Setting a state’s sales tax rate above a certain level can cause local governments to lose their competitiveness in economic development,” Srithongrung said. “Which, in turn, defeats the state’s purposes in cutting income taxes for growth.”  

In 2013, more than 300,000 business owners and farmers paid no income taxes in Kansas.

“Sales tax rates that are set beyond the level of its neighbors can cause inefficiency in the free market and taxing systems,” she said. “This is the main focus of this study.”

Kansas is one of only seven states that charge a sales tax on food, and all four of its bordering states offer lower taxes on groceries. Colorado and Nebraska exempt all food sales from taxation, while Missouri’s rate is only 1.225 percent. Oklahoma’s food sales tax rate is 4.5 percent.

KC Healthy Kids, a nonpartisan, nonprofit organization that commissioned the study, thinks the findings of the study are cause for concern, especially for low-income households.

“This may cause a substitution effect toward lower-priced convenience foods, as it is often pointed out that these convenience foods are often cheaper than fresh foods,” the organization said in a separate study.

Meaning, when given the choice between cheaper, less nutritious foods and more expensive options like fresh fruits, vegetables and meat, people will choose based on price instead of nutrition.

Representatives from KC Healthy Kids worry the substitution effect may lead to higher rates of obesity and poor health, and the food taxes place a higher tax burden on low-income families.

The second study conducted by the Hugo Wall School and commissioned by KC Healthy Kids found the less income a family made, the higher percentage of their income was paid in taxes.

For example, a family of three living in a metropolitan area with an income greater than $150,000 a year spends under 0.2 percent of its household income on grocery taxes. For a family with an income of less than $10,000, the tax burden climbs to 5 percent of household income, the study found.

Ashley Jones-Wisner, state policy manager for KC Healthy Kids, said the findings indicate disadvantages for people of all income levels.

“For Kansans living near the border, it pays to leave their state to buy food,” Jones-Wisner said. “We want lawmakers to exempt groceries from the state sales tax and keep shoppers and their money in Kansas.”