Kansas Sales Tax Pushes Shoppers Across State, County Lines
A study released last month by Wichita State University found that Kansas' sales tax pushes shoppers across state and county lines in order to save money on food. Kansas is one of only 14 states that includes groceries in the state sales tax.
Mike Kelly is sitting in his car in the parking lot of a Trader Joe’s. He pushes his tie to the side and pulls a yellow sticky note out of his breast pocket. It's a grocery list of items that his wife has asked him to buy.
“I’ve got a couple of things here. Bell peppers, avocados, onions, bananas, spinach, chicken, egg, and diced tomatoes. We're having kind of a fajita night,” he says.
Kelly lives in Johnson County, Kansas, but today he’s driven across state lines to shop. He does this two or three times a week.
He says the choice to drive a few blocks into Missouri is also a choice to save money. That’s because in Missouri the state food sales taxes are reduced to only 1.225 percent. Missouri excludes groceries from it's general sales tax which is 4.225 percent. In Kansas, the sales tax on food is the same as the general sales tax, which is more than five times Missouri’s rate: It’s 6.5 percent, and is the highest in the nation.
For Mike Kelly, who is a civil litigation attorney in Kansas City, it’s a no-brainer to shop in Missouri.
“For me it’s just as convenient," Kelly says. "I mean, without changing the street I’m on, I can go to a grocery store in Missouri, or I can go three blocks down the road and go to a grocery store in Kansas. So, I mean, the net savings is all complete benefit.”
And he is isn’t the only one who has realized that benefit. A study released last month by Wichita State found that as states cut income taxes, like Kansas has done, sales taxes become the focus for revenues.
Arwiphawee Srithongrung, is an associate professor from the Hugo Wall School of Public Affairs at the Wichita State University. She authored of the study, which uses data from 2012 and 2013. She says the findings are basically human nature: People are going to buy food in the area where the price is cheaper, whether it’s across a state line or a county line. It’s called tax avoidance--and when you add city and county taxes on top of the state sales taxes for various items, the costs are even higher.
Kelly's groceries for fajita night cost $30.69 total-- $28.86, plus $1.83 in sales tax. In comparison, if he would have driven the three blocks to a Kansas store in Johnson County and bought the same food at the same price, he would have paid $2.52 in taxes.
While it’s unlikely someone in central Kansas would drive to Missouri for groceries to save money, driving to the next county is a possibility.
In Wichita, the tax charge on Mike Kelly’s same groceries, when you consider the variations in local taxes, would have been $2.16. In Hutchinson, in Reno County, the taxes would have been closer to $2.60. And while it may not seem like much when looking at the small numbers, the differences can really add up. If Mike Kelly spent just $100 a week on groceries, in one year's time he would save almost $320.00 by simply choosing to shop in Missouri rather than Kansas.
The WSU study, which was released by KC Healthy Kids, shows that for every 1 percent increase in the tax rate, a person spends $100 a year buying groceries at a store somewhere other than home. And that’s just for food--not items like pliers and bug spray or clothing. This poses a problem for local governments tax base.
“That means your tax base is shrinking and the total volume of revenue collections, especially for state and local government, is going to be smaller,” Srithongrung says.
According to Srithongrung, Kansas’ high state sales tax doesn’t leave room for city and county governments to be competitive. She says this is also a symptom of recent trends toward cutting income taxes.
"It's a trend for state governments, when they're reducing income taxes or cutting income taxes, to rely more on sales tax to replace those income tax revenues."
Using Srithongrung’s research, this trend of border hopping for groceries can be linked to a more-than $345 million loss in food sales for Kansas during the data period and an overall decline in sales tax revenue for the state. And since the report doesn’t include last year’s sales tax hike, the impact of the revenue losses is likely much greater in recent months.
A bill was filed with the state legislature last month that aims to reduce Kansas’s tax rate on food and end the income tax exemption for non-wage business income. The taxation committee is still reviewing the bill.
Meanwhile, even with the income tax cuts and the sales tax hikes, Kansas is still looking at a budget shortfall approaching $200 million.
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