The Phantom Fourty Percent
The proponents of the half cent sales tax increase claim that 40% will be paid by those outside the city limits of Topeka or outside of Shawnee County. This claim flies in the face of common sense.
Think about it - we are going to increase our sales tax by $14 million per year, but "outsiders" will pay $5.6 million of that while we will pay only $8.4 million.
PULL FACTORS
The proponents of the sales tax increase are apparently using a 1995 "pull factors" report that showed that Topekans paid only $1.00 in sales tax outside Topeka for each $1.65 outsiders paid in Topeka. That computes to 39.4% "paid by outsiders."
Even if one accepts that pull factor calculation, Topeka's pull factor has fallen steadily since 1995. In 2007, the pull factor report showed $1.47 for each $1.00 paid, which computes to 32.0%, not 40%, "paid by outsiders."
"Pull factors" are a simplistic theory that wrongly assumes that all taxable sales are retail sales, and that every person in other cities and counties pays the same average dollar amount of sales taxes as someone in Topeka. It uses only population figures and ignores how much income people have to spend on taxable items.
SALES TAX ANALYSIS
Fully 12% of Topeka's sales tax revenue is actually use tax, which by definition is paid 100% by Topekans, not by outsiders. Use tax is collected when a remote retailer did not collect sales tax. In Topeka, virtually all use taxes are paid by businesses.
There are other Topeka sales taxes that outsiders don't pay at all. For instance, 26% of sales taxes are for housing and utilities, not retail. Outsiders pay those taxes to their own local governments instead, if they are taxed at all.
What do Kansans pay sales taxes on? Here are figures from the 2006 "Kansas Tax Incidence Study", done for the Kansas Department of Revenue by a Wichita State University department.
Average sales taxes by household: $1595
Food prepared at home: $228 (14.3%)
Food away from home: $167 (10.5%)
Alcoholic beverages and tobacco: $53 (3.3%)
Housing: $416 (26.1%)
Apparel and services: $123 (7.7%)
Transportation: $352 (22.1%)
Health care: $8 (.5%) (note that very little is taxable)
Entertainment: $152 (9.5%)
Miscellaneous: $96 (6.0%)
Another fallacy of "pull factors" is that it is assumed every Kansan pays the same amount of sales taxes, which is a ridiculous assumption. Here is a breakdown of sales taxes paid by income bracket:
Household Income: Sales Taxes Paid
Under $10,000 : $ 706
$10,000 to $14,999: $ 795
$15,000 to $24,999: $1029
$25,000 to $34,999: $1245
$35,000 to $49,999: $1433
$50,000 to $74,999: $2036
$75,000 to $99,999: $2307
$100,000 to $149,999: $2853
$150,000 to $199,999: $3405
Above $200,000: $3958
Based on income, the effective sales tax rate on consumable items for the lowest income group was 16.5%, compared on only 2.3% for the highest income group. This is because the share of income represented by taxable consumption is smaller for high-income households than for low-income ones.
Yet another fallacy of "pull factors" is that they assume everyone in every locale has the same income, or that the average in each local locale is the same as all other locales. In rebuttal, here are figures for nearby counties for 2003, the latest we could find.
County: Average income: Average income tax
Douglas: $26,817: $671
Jackson: $27,667: $485
Jefferson: $25,103: $581
Johnson: $43,587: $1162
Osage: $24,028: $490
Shawnee: $30,185: $739
Wabaunsee: $25,766: $525
Still another factor is that Topeka businesses, when they ship or deliver goods outside of Topeka, must collect and remit sales taxes for the destination government. None of the local sales tax for such "destination sourcing" sales goes to Topeka. Conversely, Topeka gets very little tax from other places because it is a trade center.
In summary, considering the lost taxes due to "destination sourcing", Topeka will be lucky to collect ten percent of this tax increase from outsiders. It will be the citizens of Topeka, especially the low- income and elderly, that will bear the burden of this tax. Topeka may even find itself in the hole if enough businesses lose volume or even close their doors.
