Bill signed by governor to end 6.5% state tax on groceries in 2025

OLATHE, Kan. (Kansas Reflector) - Gov. Laura Kelly took a trip to a Hy-Vee store to sign a bipartisan bill Wednesday phasing out over three years the state’s 6.5% sales tax on groceries, but would prefer the Legislature reconsider her proposal to promptly wipe out the state tax on groceries.

The Republican-led Legislature is sitting on a large budget surplus, but has been wary of wholesale deletion of the state’s tax on food on July 1 because it would bea political victory for the Democratic governor and the lost state revenue could haunt lawmakers in a recession. The governor has campaigned to “Axe the Food Tax,” which would be popular among consumers grappling with the highest inflation rate in decades.

Instead, the House and Senate overwhelmingly approved a bill that would culminate with repeal of the state’s food sales tax in 2025. The reform wouldn’t alter local sales tax on grocery purchases.

“We are axing the food sales tax once and for all,” Kelly said. “Eliminating the the state sales tax on food is a tax cut that helps every Kansas family. Once fully implemented it will save the average Kansas family hundreds of dollars a year. That is a big deal.”

Under House Bill 2106, the state would lower the state’s sales tax on groceries to 4% on Jan. 1, 2023. It would slide to 2% by Jan. 1, 2024. The tax would be eliminated Jan. 1, 2025. The first phase of the rollback would cost the state $77 million. The second year revenue reduction would be an estimated $252 million, followed by $411 million in 2025.

Kelly referred to the Legislature’s alternative to her plan as a “good first step,” because it would deliver savings for every Kansan. She said strong state tax revenue collections in April demonstrated the Legislature could take up the issue May 23 when legislators return to Topeka.

At the Olathe Hy-Vee, a basket of 10 random grocery items, including cheese, strawberries, peanut butter, tuna and cheese, cost $35.50. The full sales tax on the purchase would be 9.47% and equate to $3.36. If the 6.5% state sales tax on groceries was deleted, the amount paid in sales tax on these food items would be $1.05.

The bill signed by Kelly scheduled the first reduction the state sales tax on food to 4% in January. If that tax rate was applicable at today’s prices, total sales tax on the basket of goods would be $2.47. With a 2% state food sales tax, scheduled to occur in January 2024, the tax on the 10 grocery items would be $1.76.

House Majority Leader Dan Hawkins, R-Wichita, said an extreme downturn in the state’s economy had to be anticipated. The stair-step process of lowering the sales tax on groceries would allow the Legislature to remain nimble, he said.

The bill signed by Kelly defined food as standard groceries as well as bottled water, candy, dietary supplements, soft drinks and food sold through vending machines. It excluded alcoholic beverages, tobacco and prepared food offered by restaurants.

The unusually high statewide sales tax on groceries was raised to 6.5% in 2015. It was bumped up to help balance the budget because Gov. Sam Brownback’s strategy of aggressively lowering the state’s income tax — his goal was to eliminate that tax in Kansas to create job growth — depleted the state treasury to an extent it was difficult state government to fulfill basic duties.

In 2019, Republicans in the Legislature passed two tax-cut bills vetoed by Kelly. GOP lawmakers attempted to induce Kelly to approve of the cuts by inserting a reduction in the state food sales tax. Kelly rejected the legislation, saying it would have been irresponsible to add financial instability to the budget.

Derek Schmidt, the attorney general and a candidate for governor in 2022, said the latest phased approach to the sales tax on groceries was Kelly’s “second chance to get it right.”

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