Increasing the state sales tax is not just a tax hike for you and me, but for our favorite local businesses too. The idea behind raising “consumption” taxes is that if you want to pay less in taxes, buy fewer things. But if a business wants to grow and increase size, they have no choice but to buy more. Raising the sales tax is bad for Kansas businesses and the rest of Kansas.
How exactly does a sales tax increase burden businesses? As Bernie Koch of the Kansas Economic Progress Council put it, “…it’s not the sales tax you pay on a cup of coffee; it’s the sales tax the business pays when it buys the coffee cup and the coffee.”
Some businesses do get exemptions from purchases related to parts of their business. For example, restaurants don’t pay sales tax on produce for the meals they make. However, this doesn’t apply for all purchases and Kansas businesses paid $1.6 billion in sales taxes in the budget year 2013.
In fact, raising sales taxes is going to have significant and negative consequences on Kansas businesses. Even now, Kansas is at a disadvantage compared to its neighbors in what businesses have to pay in sales taxes – of all taxes paid by a Kansas business 28% go to sales taxes, while the average business in the six-state region pays just below 26% for FY 2013 and for the U.S. as a whole that number is about 21%.
Kansas’ tax cuts were targeted at reducing income taxes paid by businesses, even though what Kansas businesses paid in income taxes on business income in FY 2013 was 1/9th of what they paid in sales taxes.
The governor recently announced a plan to raise the state sales tax rate a half-percentage point to 6.65%. Based on the increase and the amount paid by businesses in sales tax, it could increase the cost of doing business by over $130 million.
By raising the sales tax rate, Kansas businesses and their customers will be the ones feeling the pinch. Instead of balancing our approach in order to provide revenue needed for our schools, public safety, roads, we’re heading down a path that makes Kansas less attractive to businesses and pushes consumers to buy needed items across state lines.