Refundable credit would ease food sales tax for low-income Kansans

Emily Fetsch
Jan. 19, 2021

For the past several years, the Kansas Legislature has discussed the state’s high food sales tax and what (if anything) should be done about it. While lowering the food sales tax would help low- and middle-income families, targeted policy solutions would be more affordable for the state, particularly during this time of economic downturn, and help Kansas families put food on the table in a cost-effective way.

The high food sales tax hurts Kansas families, particularly low-income Kansans. According to the Institute on Taxation and Economic Policy, the state’s increasing reliance on sales tax hurts Kansas’ poorest residents. The lowest 20 percent of income earners in Kansas pay an average of 8 percent of their income in state and local sales and excise taxes, compared with 1 percent for the top 1 percent of earners.

What are other states doing?

A majority of states have sales taxes, but most of them have “eliminated, reduced, or offset the tax as applied to food for home consumption.” States have altered the way food is taxed because sales tax is an example of a regressive tax (a tax that disproportionally affects the checkbooks of low-income households).

Kansas is one of only seven states to fully tax groceries (the others are Alabama, Hawaii, Idaho, Mississippi, Oklahoma, and South Dakota) and one of four of these same states (Hawaii, Idaho, and Oklahoma) that offers a credit. In addition, Kansas has the second-highest food sales tax rate in the nation. County and city governments levy additional taxes, bringing the total sales tax rate as high as 11 percent in some areas and pushing some Kansas communities far above the national average.

While Kansas currently has a food sales tax refund, the amount of the refund, along with the eligibility level, severely limits the number of beneficiaries.

We once had a refundable food sales tax credit

Tax policies implemented in 2012 undermined the financial well-being of working families. In 2013, the food sales tax credit was made nonrefundable and saw accompanying changes in eligibility. The credit had been refundable, meaning filers whose credit amount exceeded their tax liability received the difference in their refunds. Nonrefundable credits are less helpful for low-income earners, who often do not owe enough in taxes to benefit. These changes dramatically decreased the number of filers using the credit.

In tax year 2012, the final year the food sales tax refund program allowed refundability:

• 384,725 eligible filers received $60,754,843 in food sales tax refunds.

In the most recently available Tax Expenditure Report from process year 2019, the food sales tax credit benefited significantly fewer Kansans:

• 70,090 eligible filers with $9,847,101 worth of credits.

The current non-refundable food sales tax credit is restricted to taxpayers that earn $30,615 or less and are:

• Over the age of 55, or
• Disabled or blind, or
• Have at least one dependent under the age of 18 living with them the entire year.

Reinstating refundability will help low-income, working families, as well as low-income seniors. Many seniors rely on Social Security income and retirement distributions and often are below an income tax return filing requirement threshold. Before the change in the food sales tax refund, these seniors would file returns to receive the benefits of the food sales tax refund, helping them make ends meet.

Lawmakers should reinstitute the refundable credit

In the past few years, the Kansas Legislature has heard several bills that would reinstate refundability of the food sales tax credit. The most recent were House Bill 2720 and Senate Bill 398. Unfortunately, the legislature ended its 2020 legislative session early, given health concerns related to COVID-19, and lawmakers were unable to enact the bills.

Given the current economic challenges, it is more important than ever to help Kansas families keep food on the table through a refundable food sales tax credit. We urge lawmakers to consider legislation reinstating refundability to the food sales tax credit this 2021 legislative session.

 

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