Economic nexus in Kansas is a victim of aggressive tax cuts

Update 5.20.2019: A similar measure, House Bill 2033, was vetoed on May 17, 2019.

A measure that would impose a sales tax collection obligation on out-of-state sellers and require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers was approved by the Kansas Legislature on March 19, 2019. It was then sent to Governor Laura Kelly, who vetoed it on March 25.

Economic nexus wasn’t the target of the veto; the provision to tax remote sales was in the wrong place at the wrong time. Though economic nexus was expected to increase Kansas sales tax collections, Senate Bill 22 would have reduced tax revenue overall.

In her veto message, Gov. Kelly said the state is still recovering from the “multiple rounds of devastating budget cuts” that occurred under her predecessor, though she didn’t call out former Gov. Sam Brownback by name. “Unfortunately,” she said, “Senate Bill 22 would absolutely dismantle all the progress we’ve made.” Thus, the veto.

Had the measure been enacted, it would have imposed a sales tax collection obligation on retailers with no physical presence in the state that have more than $100,000 in cumulative gross receipts from Kansas sales.

Additionally, the bill would have required marketplace facilitators that meet the economic nexus threshold or have a physical presence in Kansas to collect and remit tax for sales made through the marketplace.

Finally, SB 22 would have reduced the sales tax rate for food and food ingredients. Kansas is one of just a few states to tax such sales at the full rate — most states either exempt sales of food and food ingredients or tax them at a reduced rate.

In her veto message, Gov. Kelly pointed out that SB 22 would put Kansas out of compliance with the Streamlined Sales and Use Tax Agreement, or SST. The measure expanded the definition of “food and food ingredients" to include “any items eligible to be purchased with food stamps issued by the United States department of agriculture.” SST specifically rejected tying the state definition of groceries to the federal definition.

It’s unclear what the veto means for the future of remote sales tax in Kansas. Although Gov. Kelly promised to work toward reducing the sales tax rate on food at some point in the future, she made no promise to work toward taxing remote sales.

That’s not the case in many other states. More than 30 states have adopted economic nexus since the Supreme Court of the United States effectively granted states the authority to tax remote sales in June 2018. Learn more about state efforts to tax sales by out-of-state sellers.