Audit: Tweaking Kansas sales tax law may secure $70 million in new revenue

Auditors working for the Kansas Legislature said Wednesday the state could collect an additional $40 million to $70 million annually in sales tax related to online business transactions by adopting two laws implemented in Nebraska, Iowa and other states.

The Legislature's auditors submitted a report to a committee of House and Senate members on a survey of state sales tax laws and an estimate of much revenue could potentially be generated by amending state statutes.

Adjustment of state law regarding online transactions has drawn interest in the 2019 legislative session.

"It is timely," said Rep. John Barker, an Abilene Republican who chairs the joint committee.

Heidi Zimmerman, an auditing supervisor, said a U.S. Supreme Court court decision in 2018 opened the door for states to collect sales tax from retailers without a physical presence in a state.

She said Kansas lacked a law on the books in Alabama, Iowa, Kentucky, Mississippi and Oklahoma requiring online retailers conducting a minimum amount of business in the state, often more than $100,000 annually, to collect and remit sales tax. This type of law is referred to as an "economic nexus" provision, she said.

In addition, Kansas doesn't have a "marketplace facilitator" law relied upon in Oklahoma, Alabama and Iowa to require a retailer coordinating sales for another retailer, such as Amazon or Ebay, to collect and forward sales tax to a state.

Zimmerman said Kansas' existing laws prompted collection of an estimated 90 percent of what could be remitted in online taxes if state law more closely followed legal requirements in other states. The majority of the remaining 10 percent would come from businesses rather than individuals, she said.

"I completely understand the businesses that will make sure they add that on," said Rep. Kristey Williams, R-Augusta. "I think that the majority of just the everyday person doesn't even know that they are required to pay that use taxes."

Under Kansas law, the retailer collects the sales tax and remits it to the state if the purchase occurred in a brick-and-mortar business in Kansas. If an online retailer doesn't have a physical presence in the state, the consumer is responsible for reporting the purchase and paying the tax.

In the 2018 fiscal year, Kansas collected $2.7 billion in sales tax on items purchased within the state and a use tax on items bought out-of-state that would be consumed or stored in Kansas.