Destination Sourcing Rule Continues to Create Hardships

By Doug Mays, Kansas Speaker of the House

In the closing hours of the 2003 Legislative session, HB 2005 passed the House on a vote of 98-24. The 98 legislators voting in favor of the bill believed they had voted to simplify our tax law and level the playing field for Kansas retailers who are competing with out-of-state, Web-based businesses who don't collect or pay sales tax. However, as we have recently discovered, the devil was in the details. In this case, the devil was in the destination sourcing rule.

Kansas sales tax law had been an origin-based system, meaning that a retailer collected sales tax based on the location of the sale. If you went to Topeka, for example, to buy a sofa and have it delivered to your home in Salina, you paid Topeka sales tax. With the change to a destination based sourcing rule, the retailer must charge you the sales tax rate for where the sofa is delivered, which in this case would be Salina. The changes, however, have proven to be onerous and will cost businesses across the state millions of dollars to comply.

I recently completed an eight city listening tour and had the opportunity to hear from over 500 business owners and operators from across the state. It became apparent to me early in the tour that our small- to medium-sized retailers and service-based businesses are in trouble. The cost of complying for many seems to be too great. I heard time and again that after purchasing new cash registers, computers, software and the time involved each month in bookkeeping that it was to much strain put on an already struggling business climate. Small business is the backbone of our economy and we cannot force them to endure further hardship. The destination sourcing aspects of HB 2005 must be modified or repealed before the unintended consequences of the law do more damage to our local retailers.

The streamline sales tax legislation was meant to be a way to level the playing field, but instead it seems to have done the opposite and hurt many businesses of the state. After completely my listening tour, I spoke with Governor Sebelius and asked her that, short of calling a special session, she suspend enforcement of the new destination sourcing rule until the Legislature has had an opportunity to find solutions. If it becomes apparent that no practical solutions can be found, the Legislature must repeal the destination sourcing rule immediately and return to an origin-based sales tax system.

I urge all small business owners to contact the Governor and your local Representative to let him or her know how the sales tax change has affected your business. With input from the business community, we can work through the problems and together find an acceptable solution.

Doug Mays is the Speaker of the House of Representatives for the state of Kansas. He may be reached at