A report released by KC Healthy Kids shows that Kansas’ current 6.5% sales tax on food hurts economic activity, especially in border counties. The study found the current sales tax drives shoppers across state and county lines to save money on food. The result is slowed sales growth in counties on the state line, and cannibalization of income among Kansas counties.
Of the state’s 105 counties, 40 share at least one border with neighboring states. Colorado and Nebraska exempt all food sales from taxation, and Missouri’s state food sales taxes are only 1.225%. Oklahoma, like Kansas, does not exempt food sales taxes, but has a lower state sales tax of 4.5%.
“For Kansans living near the border, it pays to leave their state to buy food,” says Ashley Jones-Wisner, state policy manager for KC Healthy Kids. “We want lawmakers to exempt groceries from the state sales tax and keep shoppers and their money in Kansas,” Jones-Wisner said.
In the wake of the grocery exodus, border counties experience lower growth in per capita food sales than interior counties by almost $5 per person.
The analysis doesn’t take into account the most recent sales tax hikes, meaning the impact is much greater since July 2015, when state lawmakers raised the state sales tax from 6.15% to 6.5%. With that, Kansas’ sales tax on food became the highest in the nation. County and city governments can levy additional taxes, bringing the total as high as 10.5% in some areas.
Shoppers will also leave one Kansas county for another with a lower food sales tax. The report found that each 1% positive increase in the ‘tax differential’ measure (which indicates surrounding counties have lower food sales tax), is associated with a $101 drop in food consumption.
In Wyandotte county, for example, the tax differential is 1.2%, meaning that on average, the higher food sales tax is driving down per capita food consumption by $121. The effect is $12.5M and $12.9 M in 2012 and 2013, respectively, in Wyandotte County.
Authors of the study, which was conducted by the Kansas Public Finance Center at Wichita State University Hugo Wall School of Public Affairs, note that these impacts of sales tax differentials are higher than in previous studies.
Kansas is one of only fourteen states that includes food for at home preparation (groceries) in the state sales tax base and one of only seven that taxes them at the full retail sales tax rate (Tax Foundation, 2012)