The debate over tax policy suddenly and surprisingly shifted Thursday night when Republican leaders successfully passed a bill eliminating the state’s sales tax on food by next year.
The Senate abandoned a plan pitched by Senate President Ty Masterson earlier this week when he called for repealing the current law that phases out the state sales tax on food by 2025.
Masterson wanted to replace the current law with a new plan to eliminate the state and local sales taxes on just healthy foods by next year while other food items would have been taxed at the old rate of 6.5%.
The new plan, authored by Republican Sen. Mike Petersen of Wichita, eliminates the state and local sales tax on food by next January.
It passed 22-16.
The exemption applies to all of the same food items that are now covered by the current law phasing out the state sales tax on groceries.
Republicans celebrated their plan, borrowing from Democratic Gov. Laura Kelly’s “axe the tax” campaign to eliminate the sales tax on food.
“Axes take too long. I prefer a chainsaw,” Petersen said.
Masterson’s proposal drew opposition from a wide array of groups, including convenience stores, nonalcoholic bottling companies, grocery stores, the state’s chamber of commerce and social service organizations.
Critics of that plan said it would have had the effect of raising taxes since food items are now taxed at 4% as the state sales tax gradually wound down through 2025 under current law.
Grocers said the bill would add an administrative burden that would force them to sift through lists of their inventory to identify what foods are “healthy” so they could program their computer system accordingly.
Masterson said he still preferred the plan to exempt healthy foods from state and local sales taxes. “But in this body, I got the sense that there was a broader acceptance of something more.”
But during the floor debate, he acknowledged that some members of the caucus might be stunned by the sudden policy shift.
“I felt like there was like this collective head explosion when this amendment came out,” Masterson told the Senate.
Kelly has urged the Legislature to eliminate the state sales tax on food as soon as possible.
She has asked the Legislature to eliminate the tax this year, and Republicans were slow to embrace the idea.
The Senate plan moves Republicans closer to the governor, although it caused heartburn among Democrats who objected to the fact that local governments would lose money because they couldn’t tax groceries.
“She said she’s in the middle,” Masterson said.
“Now, I’m waiting for her to meet me.”
Democratic Minority Leader Dinah Sykes said local governments in her part of the state stood to lose millions just if healthy food wasn’t taxed.
“This will be a significant impact to our cities,” Sykes said.
“While I appreciate the intent of this, I do think it’s going to have unintended consequences.”
Republican state Sen. Ron Ryckman Sr. of Meade shared a similar view.
He said local governments in his district would have lost about $4.2 million if they couldn’t have taxed healthy foods as originally proposed.
He questioned how local governments would make up the revenue. He said he was told there was a plan to make them whole.
“I don’t feel comfortable with that at all,” he said. “If you did have a plan for one year, what makes things different for other years?”
There also was concern expressed how eliminating the local sales tax on food might affect development projects that benefit from tax increment financing agreements.
Peterson said it was still early in the process and there was still time to find a way to resolve those issues before the end of the session.
