Monday, Nov. 17, 2008
Where do all the sales taxes go?
By Jack Weinstein
The Johnson County sales tax rate will increase next year by an eighth cent, .125 percent on each dollar, after voters approved Nov. 5 the Education and Research Triangle tax to benefit three college campuses in the area.
The tax is expected to generate about $15 million annually for the Kansas State University campus at the Kansas Bioscience Park in Olathe, the University of Kansas Edwards campus in Overland Park and the KU Cancer Center proposed for Fairway.
It's clear where revenue generated from that tax will go. And it's clear where revenue will be directed from a quarter-cent sales tax for the county's public safety projects – the last taxing authority for the county unless additional authority is approved by the state Legislature – which was approved during the August primary.
But what about the rest of it? Where does it all go?
The retail sales tax rate paid by Olathe residents is currently 7.525 percent on each dollar spent (except in five areas where a 1 percent transportation development district [TDD] tax has been imposed, increasing the tax rate to 8.525 percent on each dollar).
So in Olathe, add .125 percent for the Triangle tax and it's 7.65 percent on each dollar, beginning Jan. 1. It will be the same in Overland Park. The sales tax rate in Lenexa will be 8.025 percent on each dollar spent after the first of the year. Lenexa's tax rate is slightly higher because of the 20-year, three-eighth cent sales tax approved by voters in June for streets, parks and a new civic center.
How it works
The revenue generated from sales taxes paid by Kansas residents is broken down into three parts for each taxing entity where it's distributed: the state, county and city in which the money was spent.
Take Olathe's tax rate, at 7.525 percent, excluding the Triangle tax, since its proceeds will go directly to the three projects.
First of all, all tax revenue first goes to the state. Kansas keeps the first 5.3 percent. The next 1.1 percent is remitted to the to the county, and the remainder, 1.125 percent, goes to Olathe.
But hold on.
The county – whose 1.1 percent portion is broken down into several parts including 50 percent local, 10 percent stormwater, 25 percent public safety (passed in 1996) and another 25 percent public safety (passed August 2008) – shares sales tax revenue with its cities.
"We levy 1.1 percent, but we only get back .555 percent," said Robin Cook, the county's assistant budget director. "The rest goes to the cities. The cities get their own taxes plus a portion of what the county levies."
• The distribution from the local sales tax portion is 27 percent to the county and 73 percent split among the cities.
• The stormwater sales tax portion is remitted entirely to the county for stormwater management products.
• The distribution for the public safety sales taxes portions is 64 percent to the county and 36 percent is split among the cities. The new public safety sales tax is expected to generate about $18.9 for the county and $10.6 million for the cities next year.
Cook said the distribution among the cities was based in part on their populations and was determined by the Kansas Department of Revenue.
Including use taxes, which are taxes from out-of-state businesses who remit tax dollars back to the state from purchases made by local residents, sales tax revenue, more than $59 million will account for about 16 percent of the county's general fund, it's operational fund, revenue in 2009.
Cook said the county is more dependent on property taxes, which makes up 31 percent of the county's general fund revenue
In Olathe, sales tax revenue accounts for about half the general fund.
Excluding revenue it receives from the county, Olathe levies 1.125 percent on each dollar spent of its own sales taxes.
• Of that, nearly 89 percent is the city's general sales tax that is remitted to the general fund.
• The remainder, the 10-year, eighth-cent (.125 percent) park sales tax for new parks projects and existing facility renovations, took effect in 2005.
Some of Olathe's sales taxes are, however, put into a separate account after they've been returned by the state for reimbursable project costs when tax increment financing (TIF) districts are granted, said Maureen Rogers, the city's accounting manager.
TIF is basically a loan from the city to the developer to redevelop infrastructure in blighted areas including demoltion, but can't be used for vertical construction. It's repaid by sales and property taxes generated at the new development. Olathe can grant up to 50 percent of its general sales tax at its discretion.
Rogers said TIF revenue is remitted by the state in a lump sum that must be separated for each project to help repay the bonds. The rest is covered by the incremental increases in property tax revenue.
Revenue from TDDs works a little differently, Rogers said. TDD revenue is returned to Olathe by individual project to back the bonds issued for its traffic infrastructure. The city's five TDDs include: three at Olathe Gateway, which includes Bass Pro Shops, at 119th Street and Renner Road; Olathe Pointe at 119th and Black Bob Road; and Ridgeview Falls at 119th and Ridgeview Road.
Because of the current state of the economy, the city is projecting it's revenue from sales taxes to decrease next year from 2008, the first time since 2002. So Olathe took measures such as reducing it's workforce through attrition and layoffs to close a budget gap.
Kansas works a little differently. Retail sales tax is one of several sales taxes that contributes more than $1.7 billion of the state's nearly $6 billion general fund, said Rich Cram, director of policy and research for the Kansas Department of Revenue.
"There are a dozen or so taxes that feed into the state's general fund, but retail sales tax is not quite a third," he said.
• Cram said additional sales taxes like those imposed on liquor and tobacco also contribute to the state's general fund.
• Those funds, he said, are then divided to run the state from fixing highways to paying state employees' salaries.
So remember when making your next purchase in Olathe: you're contributing to what will amount to be half of the city's operational revenue, but before your hard earned dollars get to the city, the state takes a chunk. And some is given to the county.
But don't let that stop you from buying local. It all adds up.