Surprise! The tax reform implemented in Kansas in 2012 has flopped. In 2012, the state changed the way it taxes the income of farmers and small business owners. The plan was supposed to stimulate the economy and raise revenue in other areas. The plan has not worked out all that well. The state is projecting a $406 million revenue shortfall for the next fiscal year! The governor still wants to phase out income tax as revenue source of the state and move towards a consumption tax. Unlike income tax, sales tax is also paid by nonresidents that travel through the state and consume products and services while in the state.
Several options exist to solve the problem. The first option is to repeal the tax cuts imposed in 2012. That’s not going to happen. The most likely plan, however, is to increase the sales tax to 6.5% on most items but drop the tax to 6% on food. The current tax rate is 6.15%. Kansas is one of the few states that still broadly taxes sales of food for home consumption. Under this plan, the state is proposing to increase the general sales tax by about 6% and decrease the tax on food by about 3%. Somehow that plan is designed to increase revenue by over $470 million!
Let’s hope Kansas figures this mess out soon.
Ned Lenhart, CPA