October 2001

Oct. 25, 2001
(Distributed to Kansas newspapers Oct. 22, 2001)

Taxing a nexus

The first time that anyone saw a bread slicing machine, someone probably said quietly, "this could be the start of something big. Yes, this could catch on in a big way."

Well, it was about like that last week at the Interim Committee on Assessment and Taxation. Railsters who have hung around the Statehouse for years got that feeling when members of the committee heard that Kansas wasn't getting its slice of sales taxes from some Internet sales outfits.

The tingling sensation came from the vice chairman of the committee, Rep. John Edmonds, R-Great Bend, leader of the full-time tax committee in the House, who uttered the words "this isn't a new tax. This is a tax that is on the books and this is money that the state is owed."

Why are those fateful words, words that may shake the Statehouse in the next few months and during the upcoming 2002 legislative session? Because the House isn't going to raise any taxes next session or invent any new taxes.

Nope, the House, the most conservative of the Legislature's two chambers, won't raise taxes, but it will sure collect any taxes out there that are already on the books and are due and owing to the state.

Targets: Amazon.com and probably Wal-Mart.com, both of which are Internet businesses that don't collect Kansas sales taxes on sales to Kansans even though both have a presence in the state, and apparently by existing state law ought to be collecting Kansas sales tax and sending it into Topeka for the Legislature to spend.

Amazon.com, of course, operates a giant warehouse just outside of Coffeyville, in southeast Kansas. And legislators on the committee learned that when Amazon sells a book to a Kansas address, it doesn't collect sales tax. Because that giant warehouse constitutes "nexus" or a physical presence in the state, Kansas law says it should collect sales taxes on its sales to Kansans, maybe its sales to anyone.

Wal-Mart, similarly, has scores of stores spread across Kansas, though its Internet sales arm, Wal-Mart.com, is established as a separate business. The presumption is, if you ordered a tire from Wal-Mart.com, someone there would say "What? There are stores named Wal-Mart? What a coincidence! I'll have to look into that."

Well, either through the interim committee system, or next year when the full Legislature gathers, you can bet that Edmonds' committee is going to be looking hard at why Amazon.com and Wal-Mart.com aren't sending Kansas sales taxes on purchases made by Kansans.

This is big bucks. Millions of dollars, maybe tens of millions of dollars that the state can collect without passing any new laws. That means that legislators who are eager for the state to collect more money in a financially tight year can do so without bearing the label of tax-raisers.

Oh, and while all this activity is going to be whirling, the Kansas Department of Revenue, which is the administrative agency whose only duty is to collect taxes that are due and owing to the state, is likely to be hopping from one foot to the other saying it can't discuss anything that has to do with a specific taxpayer--like Amazon.com or Wal-Mart.com--without fear of being sued by one or both of them.

In a normal year, with revenues rising, that might be a persuasive argument for Revenue. But it isn't going to work when the state is short of money and Revenue has lawyers on salary already who, if they aren't out there suing and being sued to try to collect all the taxes that are legitimately due to the state, might just as well be out on the highway holding up those signs in road construction areas that say "slow down."

Is this taxing of Internet sales to Kansans tied up in the federal preemption of taxation of Internet access that expired last weekend? It doesn't sound like it to members of the interim committee because that preemption deals with access to the Internet, not commerce over the Internet. And, anyhow, the interim committee wasn't talking about some cosmic business that doesn't have a real home or real buildings. The Kansans are talking about real companies with bricks and mortar buildings, employees and such, right here in Kansas.

***
Shipping and handling? Looks like the Interim Committee on Assessment and Taxation isn't going to be moved much by that argument that it's only fair that Internet sales should be accomplished sans sales taxes, because what buyers save in sales taxes is more than made up for by sellers' shipping and handling charges.

See, virtually every product except milk squeezed from cows in your own back yard includes shipping and handling. Someone pays to send the lawnmowers to your local garden store. You do, in higher prices for lawnmowers.

Handling? Someone pays for handling that inventory of that lawnmower and getting it to your yard. It's split between the local retailer and you--who have to drive to the store to pick it up. And where sales taxes are collected, to boot.

Looks like an interesting winter in Kansas ahead for Amazon.com and Wal-Mart.com and many others.

Oct. 18, 2001
(Distributed to Kansas newspapers Oct. 15, 2001)

The upcoming budget

There are some interesting events out west that may complicate reapportionment in the Kansas Legislature--that may skew the Legislature's consideration of the budget for next year.

And there are indications from the governor's office that economic conditions may require rifle-shooting of budget dollars, not a shotgun, across-the-board approach.

All of that makes for an interesting legislative session coming up.

First, the western Kansas angle. Sharply higher natural gas costs last winter meant that the wellhead price of natural gas was up last Jan. 1, key date for appraisers to compute the value of natural gas leases for purposes of property valuation assessments.

What happened while most Kansans were cursing the gas meter beside our homes? Western Kansas counties atop the Hugoton Natural Gas Field were seeing increases in valuation of almost 20 percent for leases for natural gas-producing properties. That meant counties and cities needed fewer mills to raise the same amount of tax dollars, which meant that property tax levies dropped in much of western Kansas.

Good news out there; hard-to-understand news in eastern counties and urban areas where natural gas comes through pipes and where legislators and homeowners were looking for someone to blame for their soaring bills. Well, it turns out there's virtually nothing that can be done to the producers, the gathering field operators, the pipeline companies and the local distribution facilities. But...if there's nothing that can be done for last winter's price spikes, at least legislators can complain about tertiary beneficiaries of those higher gas prices--local units of government sitting atop those natural gas fields.

That's an east-west flap that will likely be in the back of legislators' minds when they decide whether to zap one or two Senate districts from western Kansas, and three or four House districts.

See, there's almost always a payback in the Statehouse, and what's more satisfying than reducing the representation of offending areas of the state in the Capitol building?

Keep that in the back of your mind as reapportionment of the Legislature winds its way through the Statehouse this winter...
Oh, and the budget next year? Take a tip from halltalk from Gov. Bill Graves that he's looking at increasing spending on kindergarten-12th grade--but that he's going to try to rifle-shoot relief to school districts. He's talking more funding for special education, not general state aid to all school districts for all purposes.

If there has to be a tax increase of some sort next session, and legislative leaders aren't comfortable predicting that there will be an increase in an election year, Graves knows that the part of it for education is going to stand a lot better chance among legislators if it is targeted to special education.

Look for more indications that across-the-board spending increases aren't going to fly next session, and that if there are areas of the budget that are going to be increased, they are going to be narrowly defined and relatively inexpensive...

Oct. 11, 2001
(Distributed to Kansas newspapers Oct. 8, 2001)

High-tech taxes

Something almost remarkable is going to happen sometime next year and it's going to be something that only your city or county's accountants are going to notice.

It's going to be the effect of the Federal Mobile Sourcing Act. And it is going to raise some big questions about computers and sales taxes.

The Special Committee on Assessment and Taxation is going to--in fact, has to by federal law--approve a bill that will switch the sales tax remittance on cell phone calls from the taxing district from which they are made to the taxing district where your cell phone "home base" is located.

So, say you're in Leawood's Dean and DeLuca's pricey gourmet food store in Johnson County, and you decide to call home to Salina or Topeka or Hill City or somewhere else to check in with your spouse on the topic of can your family really afford a $12 bottle of fancy flavored mustard.

Now, that's a call that many of us would make while pricing food at a gourmet store.

Well, if you make that call now, the sales tax charge on that call is collected by your cell phone company and divvied up between the state of Kansas and the treasury of the city you're calling from.

That means, for example that Johnson County will not only collect its local option sales tax on the $12 jar of mustard, but also the call home to see if you can really afford the mustard or whether you ought to buy shoes for the baby instead.

The Federal Mobile Sourcing Act is going to fix that, if you thought it was a problem, anyway.

What will happen is that the state will get its sales tax, and if your city or county has an optional sales tax, your home city or county will get its share of the sales tax on the call.

Is this a big deal? Well, officially, we're told that it isn't. "Revenue neutral" is the term that is used to describe the effect on the sales taxes collected in Kansas. But it will make a difference, for example, if you don't live in the place from which you are making the cell phone call. It'll be pennies per call. But, since we're guessing that more people from outside of Johnson County call home before buying a $12 jar of mustard than do people who live in Johnson County, it's going to be a revenue shift; "revenue neutral" to the state as a whole, but clearly not neutral among cities and counties with local option sales taxes.

And, of course, it's all going to be computed electronically by your cell phone company.

Is this a big deal? Are sparsely populated cities and counties going to be able to finance new bridges or sports complexes or public statuary on the strength of this re-directed sales tax on cell phone calls? Probably not.

But...it's already making some people wonder why, if the federal government can order the redirection of sales taxes on cell phone calls and the cell phone industry can figure out how to do it, mail order companies can't figure how to collect and remit sales taxes on the Garden Weasel or silk tie or waterproof hip waders that Kansans order over the Internet, or phone out of state, or maybe just fill out an order form and mail out a check to buy.

Hmmm...

Something tells us that the highest-tech of instruments many Kansans carry--their cell phones--may just lead the way to the state and local units of government eventually getting their sales taxes on those purchases made from out-of-state companies.

Maybe.

Oct. 4, 2001
(Distributed to Kansas newspapers Oct. 1, 2001)

Uneasy fiscal outlook

We're about a month away from the pivotal announcement of the next legislative session and so far, things don't look good for the state's Consensus Revenue Estimating Group.

The CREG looks into the Kansas economy and predicts how much money the state is going to have to spend in the rest of the current fiscal year and the fiscal year that starts off on July 1, 2002.

There are really just two options for the CREG: predict that revenues to the state will be increasing, and everyone recites the ode to joy. But, if the economic tea leaves indicate that revenues will be stable or even decreasing the coming legislative session turns ugly in a hurry.

The key is that the governor's budget for the upcoming year must, by law, be based on the CREG estimate of available revenues to the state. And, because the group will not only predict revenues for the year that starts next July, but also predict how the next nine months of the current fiscal year are going to pan out, that early November meeting will cast its shadow over nearly 20 months in the life of state government in Kansas.

So far, nothing looks very good in terms of revenues...which means that broad sections of the state's economy ranging from health care for the poor to public education to programs to induce new businesses to come to Kansas and hire Kansans to make their fortunes are in the balance.

What's the problem? Remember last year's natural gas price spike, the one that doubled and tripled our heating bills? Well, that price spike brought tens of millions of severance tax dollars into the state's coffers. And the budget for the current year--that is money already spent by the Legislature--is likely to take a sharp drop from that source, as much as $20 million to $25 million, experts say.

Oh, and remember that "Bush tax cut" that is playing out in the form of $300 and $600 checks to Kansans? Well, the back side of that legislation also makes for major-league reductions in state tax revenues, about $25 million worth in the current fiscal year. It's tied primarily to federal income tax provisions which soup up deductions for contributions to education and retirement accounts, a good thing, but it means that more money that the Legislature has already budgeted to spend this year won't be there.

And this comes at a time when on the national and state levels, there are things to be done that only government can do. The "starve the beast" mantra of the Legislature in the last couple years, designed to reduce the inflow of revenue to state government so that it would have to start reducing the services it provides Kansans, is likely to find itself out of favor when individuals and cities and counties learn that they can't provide the heightened level of security for basic services that citizens want.

Count on the state, not the counties or cities, to assume the responsibility for protecting water supplies, utility networks, telephone service...all those necessities of life that nobody worried much about until the Sept. 11 terrorist attacks on the East Coast.

So, count on the state to need some more revenues for next year, but don't count on rosy revenue estimates to provide the money for it.

That's why next month's revenue estimates are going to be pivotal for the next 20 months of life in Kansas.