By Rachel Whitten
March 15, 2010

(KansasReporter) TOPEKA, Kan. – Kansas business owners and non-profit service organizations urged lawmakers Monday to reject proposals that would require groups as diverse as utility customers, Girl Scouts and coin-operated laundry owners to pay more sales taxes.

  “Because we operate on the leanest budget possible, as do most nonprofit organizations, the result of removing the sales tax exemption will be hundreds of families in Kansas will lose vital support that will not be provided otherwise,” said Ray Emery, the pastor of the Midway Baptist Church in Wichita, one of many persons asking the Senate Ways and Means committee to reject the repeal of a long list of sales tax exemptions called for in Senate Bill 476.

 The bill would repeal sales tax exemptions for residential utilities such as electricity and water, for lottery tickets and bingo cards, for churches and non-profit organizations such as the YMCA, and for many individual groups individually named in laws passed over the last several years.

House Taxation committee members earlier this month declined to recommend passage of a similar bill, House Bill 2549, when they voted earlier this month to send that measure to the full House for debate.

House Speaker Mike O’Neal, a Hutchinson Republican, said late Monday that members would begin that debate Tuesday and urged lawmakers on both sides of the aisle to decline raising taxes for recession-strapped Kansans.

“The real answer to this crisis is to have state government take a lesson from Kansas families and learn to live within its means,” O’Neal said.   

Repealing the exemptions listed in the Senate version of the bill heard Monday would provide state government about $194.46 million in additional revenues during the fiscal year beginning July 1, according to a fiscal note accompanying the proposal. Capitol budget writers currently estimate they will need to come up with more than $400 million in revenues or reduced spending to balance that fiscal 2011 budget.

Two organizations that support the removal of the sales tax exemptions are both related to education—the Kansas chapter of the National Education Association, or KNEA, and the Kansas Association of School Boards. 

“Our primary reason for supporting this measure is we believe the state must raise additional revenue to avoid further damaging cuts to vital public service, particularly elementary and secondary education,” said Mark Tallman, representing the school boards group. 

From a tax policy standpoint, advocates of removing such exemptions say the plan falls into a “good tax policy” category because it theoretically taxes consumers more equally. 

However, “any type of business to business transaction that is subject to sales tax is not good tax policy,” said Art Hall, director of the Center for Applied Economics at the University of Kansas.

The one exemption repeal that does not fall under good tax policy by that definition is that the bill provides that commercial properties who employ janitorial services will have to pay sales tax on that service

“The sales tax becomes part of their production costs, and then when they have to sell their product it falls to the consumer,” Hall said.  

While it may be good and fair tax policy to charge business to consumer transactions, Hall said it’s not good economic policy.

“If you’re getting rid of consumer exemptions that’s ok tax policy, but from an economic position it will still have a negative impact because you’re taking money from the more efficient private sector to the less efficient government sector,” Hall said.