Impact

of School Finance Ruling on Property and Sales Tax

The Gannon court ruling on school finance would cost taxpayers $597 million more per year. The state aid formula would have to be increased by $443 million ($654 perpupil time weighted enrollment of 677,833). Local property taxes would automatically increase by $154 million as higher state aid would increase the Local Option Budget.

Option 1: Property Tax would increase 15%

If the entire $597 million is funded by property taxes, the average tax bill would increase by 15%. Total property tax collections in 2011 (latest data available from KDOR) were $3.916 billion; based on 2011 data, mill rates would have to increase 15% to generate total property tax of $4.513 billion. Kansas already has some of the highest effective tax rates (ETR) in the nation. A study published in 2012 by the Minnesota Taxpayers Association and the Lincoln Institute of Land Policy found:
Among rural areas (highest ETR in each state), Iola has the highest rate on commercial property. Among the 50 largest cities in the U.S., Wichita has the 5th highest ETR on commercial property. Among rural areas (highest ETR in each state), Iola has the 9th highest rate on a $150,000 home.

Option 2: State Sales Tax Jumps to 7.4% and Local Property Taxes increase 4%
Each percentage point on the state sales tax generates about $400 million, so the state sales tax would have to increase from 6.3% to 7.4% in order to generate $443 million. There would also be a 4% increase in property taxes to generate the additional $154 million in LOB property taxes. The Tax Foundation studied sales tax rates in effect July, 2012. Kansas had the 9th highest combined sales tax rate in the nation (6.3% state and average local rate of 1.96%). Raising the state sales tax rate to 7.4% (based on 2012 tax rates) would cause Kansas to have the 2nd highest state and local sales tax rate in the nation.