Kansas losing grocery tax revenue to border hopping, study says

Larry Adams lives in northern Kansas, but about half his grocery shopping is done in Nebraska.

“If we need a loaf of bread, we’ll buy it locally,” said Adams, a resident of Logan in rural Phillips County. “But if we’re already going to the doctor in McCook (Neb.), we’ll stop at Wal-Mart and fill the car up.”

The reason is simple. Food is taxed at 8 percent in Logan. But food isn’t taxed at all in Nebraska, about 25 miles to the north.

A Wichita State University study released last week suggests the state sales tax on food, in addition to local sales taxes, is causing shoppers like Adams to buy groceries across state lines for better deals.

And the study says all those cross-border tax receipts from food sales are costing Kansas border counties and the state’s coffers.

“We’re in a tough situation from every angle right now, and ultimately the consumer is at a disadvantage because we have a high sales tax on food,” said Sen. Michael O’Donnell, a Wichita Republican.

But there’s disagreement about whether so-called “border hopping” is happening en masse.

The Legislature raised sales taxes on groceries along with other consumer items after last year’s record-length legislative session. Many legislators last summer promised the issue would be revisited this year.

“Kansas hasn’t forgotten about this,” said Ashley Jones-Wisner, state policy manager for KC Healthy Kids, the nonprofit that funded the study. “This is an issue that affects all Kansans at all income levels.”

But it could be an uphill battle for Kansans to get much tax relief at the checkout line.

“If we were to lower the sales tax on food, we’ve got to go raise taxes somewhere else,” said Rep. Marvin Kleeb, an Overland Park Republican and House tax committee chairman. “And I doubt that there’s going to be a tremendous appetite, at least right now, to go raise taxes somewhere else.”

The state sales tax is 6.5 percent. Unlike in many other states, there is no exemption or reduction in Kansas on the rate when you buy food.

But the taxes increase when you account for city and countywide sales taxes across the state. The combined state-local sales tax can push 10.5 percent in some areas.

“If you’re a family of four or five or more shopping for food, that’s a big chunk of change,” Jones-Wisner said.

She said the sales tax on food is also a health issue for low-income families.

“They’re forced to make some choices, in terms of consumer behavior, and buy things that are cheaper, which are often less nutritious,” Jones-Wisner said.

Nebraska and Colorado don’t charge any sales tax on food. Missouri taxes 1.225 percent on food.

The taxes may tempt some people close to the border to hop in their cars and make the trip for groceries, according to the study conducted by WSU’s Hugo Wall School of Public Affairs.

“Bordering counties’ consumers appear to readily shift their purchases to lower tax jurisdictions,” the study says.

The study found that border counties experience lower growth in food sales per person than counties without a state border. It took into account other factors like the county’s population, economy and demographics.

The study suggests the effect of the sales tax on food is not limited to counties on the state’s borders.

The report found that a penny difference in sales tax between Kansas counties can drop food sales per person by more than $100 for the more expensive county per year.

For example, the report estimated that Wyandotte County lost $12.9 million in food sales in 2013.

Ken Kriz, a WSU professor and director of the Kansas Public Finance Center, says that means counties could be “cannibalizing” sales tax revenue as they compete against one another for customers.

“Whenever you have a local-option sales tax, it opens it up to competition between counties,” Kriz said. “It’s kind of the race to the bottom.”

The data for the survey is from 2012 and 2013, before last year’s tax increase. The effect is probably greater after the most recent sales tax increases, Kriz said.

But there’s disagreement about how widespread border hopping for grocery shopping actually is. Kleeb said the anecdotal evidence might not be much more than that: anecdotes.

“Unless you live one or two blocks from a state line, you’re not going to be able to justify whatsoever half a gallon of gas to go across a state line,” he said.

Kleeb said the food sales tax should be lowered “as soon as it’s feasible.” But he has doubts about any change during this legislative session, which comes in an election year.

“I think it’s going to have a real uphill run,” Kleeb said, “because nobody wants to talk about a tax increase anywhere, which is what it’s going to take to have a tax decrease on food.”

This story was originally published January 17, 2016 at 4:42 PM with the headline "Kansas losing grocery tax revenue to border hopping, study says."