Governor’s Tax Council to consider food sales rebate and property tax reliefScott Rothschild
Following public testimony, the Governor’s Council on Tax Reform seems likely to propose several targeted tax changes for the upcoming Legislature session, while preparing for a more comprehensive strategy for its final report next year.
Co-chair Steve Morris, former Kansas Senate President from Hugoton, recommended Thursday the council focus on two issues at its next meeting in December: a food sales tax rebate and funding a program to lower property taxes statewide.
The 2020 Legislature is expected to also consider proposals to reduce income taxes for Kansans who had increases due to changes in the federal tax code, look at taxation of international income received by Kansas businesses, and cut the sales tax rate.
The council was briefed on new state revenue estimates released earlier this month that added over $500 million in projected state general revenue over Fiscal Years 2019-20 and 2020-21. That additional revenue will be a target for efforts to both cut taxes and add funding to state programs still affected by income tax reductions passed in 2012 then mostly reversed in 2017.
However, state budget officials warn that the state is still on a path to spend more than it is taking in for the next few years, due to the phased-in school finance plan in the Gannon case, higher contributions to the Kansas Public Employees Retirement System to make up for past underfunding, and higher human service costs, mostly for medical assistance.
In testimony, various groups and individuals urged the council to address specific concerns. KASB asked the council to set clear goals and measures for economic outcomes and maintain equity and adequacy in school finance. Here is a link to KASB’s testimony. The Kansas Association of Realtors called for preserving tax advantages for home ownership; the Kansas Chamber of Commerce said it is finalizing a pro-growth business strategy with input from the U.S. Tax Foundation; and the League of Kansas Municipalities voiced concern over limited local revenue sources and the impact of the local tax lid. A number of organizations and individuals spoke against the high state sales tax on food.
Although Kansas has one of the highest sales tax rates on groceries in the nation, members of the council worried that a general rate reduction would be very costly to state revenues and provide reductions to all income levels, including those already paying a lower share of income in taxes. As a result, there is interest in targeting relief to low income taxpayers through a sales tax rebate.
The council also reviewed the concept and history of the “three-legged stool” of tax policy – the balance between income, sales and property taxes. Since the 1980’s and 1990’s, there has been a general goal of keeping the combined state and local revenues from those sources roughly equal. The closest the state came was followed the 1992 school finance act, which raised state income and taxes and sharply reduced school property taxes.
In 1998, income taxes accounted for 28.0 percent of state and local revenues; sales taxes 28.1 percent and property taxes 30.9 percent. In 2017, after the 2012 income tax cuts, income taxes made up 19.4 percent of combined revenues; sales taxes 31.2 percent and property taxes 37.1 percent. This year, after tax cuts were largely reversed, income taxes make up 26.5 percent, sales taxes 28.0 percent and property taxes 34.3 percent.
Because property taxes remain the highest “leg of the stool,” the council expressed interesting restoring funding to the Local Ad Valorem Tax Reduction Fund (LAVTR), a formula that sends state dollars to local governments that must be used to reduce property taxes. However, funding for the program was suspended years ago during state budget shortfalls.
The council will hold its final meeting before the 2020 Legislative session December 3-4. The council will continue through next year and develop a final report for the 2021 session.