Sales Tax Talk in Primary

May 16, 2011

Most politicians steer clear from discussions about ‘taxes.’ That’s particularly the case if the talk is about a new tax or a tax increase.  Still, ongoing concerns over Kentucky’s budget have some candidates in Tuesday’s primary talking about potential reforms.

Instead of talking about tax hikes, politicians in Kentucky sometimes talk about redistributing the tax burden.  Such reforms could increase taxes for some people while decreasing them for others…but, the amount of tax money collected by the state would remain the same.  When, the three gubernatorial candidates in the Republican primary appeared last week on Kentucky Educational Television, they talked about increasing the sales tax, while cutting other state taxes.

“If we just expand the sales tax to include goods and services and don’t repeal the other taxes, fees, and surcharges, they will just continue to propagate and get bigger and it will be the same quagmire that we have now,” said Phil Moffett.

“I believe that if we’re gonna’ go to a consumption tax, then there needs to be some provisions in there for people that are on a fixed income,” said Bobbi Holsclaw

“And people in the grocery business, for example, aren’t gonna be real excited about putting a sale tax on the groceries and they’re gonna be a lot of political problems involved anyway,” added David Williams.

All three said they support a move toward the sales tax.  But there were conditions.  Williams, for instance, also wants to eliminate the corporate sales tax.

Meanwhile, ‘Burden Grocery and Deli’ in downtown Richmond first opened in the 1950s, but there have been interruptions.  In fact, co-owner Harold Burden says the store re-opened three months ago after being closed for five years.

“You just can’t get no where, people come in they’ll buy like lunch meat, they’ll buy two slices.  I’ve never seen nothing like it anymore.  Two slices of lunch meat…out the door they go,” said Burden.

Levying a sales tax on groceries concerns Burden and his wife. Still,  Laura Burden’s convinced such a tax on groceries is inevitable.

“I think it’s very wrong because poor people have a hard time living as it is.. and if they tax food…it’s gonna take a lot away from little kids,” explained Burden.

Two accounting professors at the University of Kentucky admit any change in the state sales tax would be a tough sell politically. However, for poorer people, Doctor David Hulse says a sales tax might not create an additional burden.  Depending on how much a person spends, Hulse says the amount of sales tax could be the same as an income tax.

“If I earn 30 thousand dollars, there’s some people that will go ahead and spend all 30 thousand dollars.  They won’t save anything.  So, in a situation like that, whether you levy the tax on the income earning end or on the consumption end, it’s gonna end up being on the same amount,” said Hulse.

With an economy deeply rooted in the service sector, accounting professor Tom Pope says Kentucky is missing out on a lot of sale tax revenue.  There’s no sales tax on many of the services sold by Kentucky businesses.  So, basing taxes on sales and not income could pump more money into state coffers.

“I think most people believe that you would raise more tax revenue with a sales tax than an income tax as long as long as you can bring in the sale tax aspect,” said Pope.

Pope says Kentucky must also figure out a way to tax sales via the internet.  According to federal law, a business based outside the Commonwealth is not required to collect a sales tax on products it sells to Kentuckians. 

“That’s a real serious concern of maybe going to completely to a total sales tax is how do you handle the electronic commerce issue,” said Pope.

So, political leaders and economists alike see the need to update and reform Kentucky’s tax structure.  The biggest question is when and it’s a question not likely to be answered by this year’s elections.