Why would Kansas tax Netflix and Spotify? Gov. Laura Kelly’s plan should be rejected

Kansas Gov. Laura Kelly should abandon her proposal to impose sales taxes on Netflix and other digital streaming services.

Her misguided plan would hit Kansas consumers who buy books online, play games online, stream music, or subscribe to digital newspapers and magazines — that is, virtually everyone in the state.

The measure, which is part of Kelly’s 2021 budget that was released last week, would raise $26.7 million, starting in July, and another $6.7 million for local governments.

The governor’s staff insists the digital tax is not about money, but about fairness for sellers of physical books and DVDs.

“Kansas sales tax policy is antiquated, and as more and more items are being purchased online, we at least can level the playing field for existing Kansas businesses,” Kelly’s office said.

But the comparison is flawed. If you buy a movie at the store, you own the actual disc or videotape. That’s why those goods are taxable. Sales taxes apply to tangible personal property, which “has a physical presence,” the state’s own guidebook says.

By contrast, consumers don’t own streamed movies or songs. Digital providers are more like a service.

Some services are taxable in Kansas, but others, such as child care and snow removal, are not. Taxing digital streaming products will raise thorny questions about other services that should be subject to a sales tax, potentially adding to the tax burden.

There is no good explanation for why playing a video game online should be taxable while hair styling is not.

Kansas has been down this road before. Three decades ago, former Gov. Joan Finney, also a Democrat, proposed taxing dozens of exempt services such as legal work and accounting. Her effort collapsed in the face of bitter opposition from across the state.

Kansans will be no more enthusiastic about sales taxes on cellphone apps.

Questions about fairness go beyond services. Some tangible products are also exempt from sales taxes in Kansas, including farm machinery, broadcasting equipment and aircraft. If an audio book is subject to a sales tax, private jets should be, too.

But here’s the most important reason to oppose this plan: It extends the state’s unfortunate reliance on sales taxes to pay for government services.

We believe in fully funding the state’s schools. We support the expansion of Medicaid. We believe the state’s foster care system must be improved. All of those efforts, and more, cost money.

But broadening the sales tax isn’t the way to do it. In fact, Kansas’ unconscionably high sales tax on food must be reduced (Kelly’s proposed food sales tax credit of $1.15 a week for low-income individuals is insufficient.)

There’s a better option. The income tax rate in Kansas is still substantially lower than it was 10 years ago. The top rate today is 5.7%; in 2010, it was 6.45%.

Simply restoring the income tax to the 2010 level would provide Kansas with enough money to meet its needs, without taxing you when you subscribe to Spotify. Adding a fourth income tax bracket and raising taxes on wealthy Kansans might also do the trick.

Politicians are uninterested in income tax increases, of course, because they’re visible. Better, they think, to raise taxes on a digital subscription or an app — or a loaf of bread — by a fraction of a penny. No one will notice.

It’s cynical and wrong. Taxes should be fair, simple and low. The governor’s digital tax hike fails on all three counts, and it should be rejected.