Business officials lined up Wednesday against a plan to impose sales taxes on certain services. Lawmakers in the Kansas Senate are considering the tax changes to help balance the budget and lower the sales tax on food.
Under the bill, which has already passed the House, sales taxes would be imposed on certain services. Those services include towing, some pet care, debt collection and storage unit rentals. Business owners and industry advocates from those groups asked the Senate's tax committee to reject the proposal.
Irene Hoheusle is with the debt collection company Account Recovery Specialists, Inc. Many of their clients are health care facilities trying to collect debts. She said they have more than 100 employees in Kansas, but they’d have to cut jobs if this bill becomes law.
“We would have to downsize, because there’s no way our clients could afford to pay this tax,” said Hoheusle.
Hoheusle said if they raise costs, their clients could switch to out-of-state companies with lower rates or other types of companies that do the same work but wouldn’t pay the tax.
“They’re all handling the same exact actions and services, but they don’t have that fee assed to them, so of course they can offer lower rates,” said Hoheusle.
Members of the Senate tax committee seemed skeptical of the plan. Republican Senator Larry Alley said he doesn’t like the piecemeal approach of selecting specific services that would be subject to sales tax.
“If we’re going to put it on services, put it on services,” said Alley. “If we’re just going to go pick this group vs. that group, I think that we have a problem.”
Democratic Senator Tom Holland said he supports lowering the sales tax on food. However, he said this plan would have unintended consequences. Holland used the example of a company already locked into a contract with a client, so the company won’t be able to charge the client for the sales tax increase.
“You are significantly impacting in a negative way those companies’ profitability that they can’t recover from,” said Holland.
The proposal originated in the House, and Republican Representative Kristey Williams told the Senate committee that eliminating sales tax exemptions would broaden the tax base.
“When you do this, I think all Kansans win,” said Williams.
Williams said she understands that once a sales tax exemption is granted it’s difficult to take it away, but she said making tough decisions on tax exemptions will help reduce tax increases in other areas.
“When you do this, you lower that income tax rate that may have to go up to fill that budget gap,” said Williams. “What we’re doing is talking about a way to look at the tax plan comprehensively.”
Lawmakers need to erase budget deficits that amount to almost $900 million by the middle of 2019. The sales tax charges on services added by the bill would raise about $170 million through the middle of 2020. At that point, the food sales tax would be reduced. The lost revenue from food sales taxes would more than offset the revenue raised by imposing the new sales taxes on some services.
The group KC Healthy Kids spoke in favor of the tax plan, because members of the group want to lower the sales tax on food. Ashley Jones-Wisner said the sales tax on food disproportionately impacts lower-income Kansans and can cause them to choose less healthy options in the grocery store.
Jones-Wisner would like to see a larger reduction in the food sales tax, but said the group is still supporting the plan.
“This is a baby step in the right direction,” said Jones-Wisner.
The bill would impose the new sales taxes on services this summer. The sales tax rate on food would drop by one percentage point in 2020.