(Updated to include comment from House speaker, with edits)
Gov. Laura Kelly’s tax reform committee on Tuesday made a series of recommendations to the 2020 Legislature, including a bill levying a sales tax on digital products such as music downloads, movies, books and apps.
The proposed legislation applies a tax created in 1937 to consumer products that have evolved into a digital format with the growth of the internet, a state revenue official told the task force Tuesday.
“This is nothing new,” said Mike Hale, an attorney for the Department of Revenue. “It’s simply a recognition that the people in 1937 could never conceive of this thing called the internet. Nobody thought, ‘Hey, I can download concerts and books and it will just be at the touch of my finger.'”
The Revenue Department projects that the tax would generate about $30 million a year, of which about $6.3 million would go to local governments.
“It really is a simple recognition of the modern society we live in today and an effort to equalize and level the playing field between the internet sellers and the mainstream bookstores, music stores, etc.,” he said.
Hale acknowledged there was a similar bill adding digital sales tax two years ago, but it never advanced out of committee.
House Minority Leader Tom Sawyer favored recommending the proposed legislation.
“More and more things are going to be digital and if we don’t do this, our tax base is going to get smaller and smaller,” he said.
House Speaker Ron Ryckman Jr. criticized the recommendation, pointing out the governor vetoed a bill saving Kansas taxpayers money because they would have been allowed to itemize on their state taxes if they didn’t itemize on their federal return.
“Laura Kelly promised she wouldn’t keep raising taxes on our families,” Ryckman said.
“Yet, here we go again, another proposal from her administration that would raise taxes on our families, nickel and diming Kansans every time they buy a book or their kids listen to music online.”
Other recommendations made Tuesday included:
- Implement a new, refundable food sales tax credit. The committee recommended placing an income cap on the tax credit based on federal adjusted gross income and limit it to taxpayers who were Kansas residents for the entire tax year. The credit would benefit an estimated 400,000 Kansans if it were fully implemented.
- Impose a sales tax on out-of-state marketplace facilitators. The bill is projected to raise $32 million a year. A marketplace facilitator is a business or organization that contracts with third parties to sell goods and services on its platform and facilitates retail sales. The facilitators assist sales by listing the products, taking payments and, in some cases, shipping the product. Kansas is one of five states that doesn’t tax facilitators.
- Put money back into the Local Ad Valorem Tax Reduction Fund, which sends money to local government to help keep property taxes low. The state last put money into the fund in 2003. The Legislature has suspended about $898 million in transfers to the fund from the second half of fiscal year 2003 through fiscal year 2019.
- Exempt the local property tax lid for funding local transportation projects. Officials said the tax lid is impeding local governments’ efforts to fund road and bridge projects. The recommendation comes at a time when state transportation officials are asking local governments to bring money to the table to secure state funds for transportation projects.
The commission will continue meeting into 2020 with a goal of making a final report in December in advance of the 2021 legislative session.
The committee next year will take up tax exemptions, the earned income tax credit, decoupling from the federal tax code, global intangible low-taxed income and overall property tax relief.
