Food Tax on Chopping Block
By Kathleen Hunter, Staff Writer
Shoppers in four states soon may be paying less at the supermarket checkout counter, thanks to reduced taxes on groceries. The food-tax relief, aimed at low-income consumers, grows out of rebounding revenues in states across the country.
In Mississippi, where many residents are struggling to regain their financial footing six months after Hurricane Katrina leveled parts of the Gulf Coast, lawmakers have passed a bill that would cut in half the nation's highest state grocery tax — seven cents on every dollar --while raising the tax on cigarettes to $1 a pack. Gov. Haley Barbour (R), who vetoed a previous bill that would have totally eliminated the tax on food, is studying the long-term costs before deciding whether to sign the compromise plan.
In Wyoming, legislators in Cheyenne are putting the finishing touches on a measure that would rescind for two years that state's 4 percent sales tax on groceries. Gov. Dave Freudenthal (D) has agreed to the bill, even though it means he won't get the broader sales tax reduction that he wanted.
Lawmakers in Utah recently slashed the tax on groceries from 4.75 percent to 2.75 percent, beginning in 2007. The grocery-tax cut was one of the few tax-relief proposals touted by Gov. Jon Huntsman Jr. (R) that did not stall amid a legislative scramble to carve up a record-breaking $1 billion state budget surplus.
West Virginia Gov. Joe Manchin III (D) lauded lawmakers during his January State of the State address for cutting that state's grocery tax from six cents on the dollar to five cents. Manchin credited the move with keeping $25 million in taxpayers' pockets. "This 1 percent reduction is simply a starting point," he added, "and we will continue to reduce this tax in a fiscally responsible manner as the state's economy grows until we have eliminated it completely."
Georgia and New Mexico also recently eliminated the tax on food sales. Virginia accelerated a cut in that state's grocery tax so the reduction happened over one year instead of three. Currently, 34 states impose no state sales tax on groceries, while five others (Illinois, Missouri, Tennessee, Virginia and West Virginia) tax food at a lower rate than other products, according to the Federation of Tax Administrators (FTA ). In Georgia, Louisiana and North Carolina, there is no state tax on food sales, but local governments are permitted to tax groceries.
States' improving economic conditions are fueling the flurry of food-tax cuts. Since 2001, states have been clawing their way out of their worst fiscal crisis since the Great Depression. Last year, they received welcome news when every state's revenues met or exceeded expectations, helping to spark the first round of net tax cuts since 2000, according to the Nelson A. Rockefeller Institute of Government. Now that swelling revenues have put tax cuts and new spending in the realm of possibility for the first time in several years, proposals to ax the food tax are popping up along with efforts to reduce income taxes and to cap or roll back local property tax rates.
Grocery-tax cuts specifically seek to ease the tax burden on low-income residents. The Center on Budget and Policy Priorities, a Washington, D.C., group that focuses on policies affecting the poor, estimates that a family of four in a state that charges tax on food pays $438 a year in food taxes. What's more, the taxes poor people pay on groceries nearly always account for a larger percentage of their income than those paid by more affluent people. "There's been a lot of focus in recent years on trying to offset the impact on low-income households by reducing the tax on food," said Harley Duncan, executive director of the Federation of Tax Administrators.
Proposals to cut grocery taxes face some opposition. Wyoming Rep. Rodney "Pete" Anderson (R) in the Wyoming Tribune-Eagle (Cheyenne) described the state move to suspend the food tax for two years as a "boondoggle." Anderson argues that when the grocery tax is reduced or eliminated, many sellers will raise the price of food to make up the difference, negating any benefit to the buyer. He estimates that the two-year rescission will cost the state $98 million.
Wyoming is among five states — the others being Hawaii, Idaho, Kansas and South Dakota — that tax food but also allow people below a certain income to apply for various forms of reimbursement, according to the Federation of Tax Administrators. "Instead of cutting the tax for everyone regardless of income, you're trying to direct the relief to particularly low-income households," said the federation's Duncan.
But don't expect any food-tax relief for Big Macs. State tax exemptions or reduced tax rates for groceries almost always are limited to non-prepared food purchased for home consumption. Indeed, take-out, fast food and prepared food sold in the grocery store often are taxed at a higher rate, said Bert Waisanen, an expert on state tax policy at the National Conference of State Legislatures (NCSL).