Utah lawmakers are once again considering doubling the state sales tax on food, reversing a cut enacted five years ago.
In its place, Sen. John Valentine, R-Orem, is proposing targeted relief for low-income Utahns through a refundable credit to help defray the cost of groceries for the state’s poor and a refundable income tax credit for its low-income workers.
In 2006 and 2007, Utah’s sales tax on food was cut from 4.75 percent to 1.75 percent, a major initiative backed by then-Gov. Jon Huntsman.
The downside, Valentine says, is that the sales tax revenue began to fluctuate and dipped at a time when there were more demands on programs funded with that revenue.
“We have seen over the last number of years, since we took the sales tax off of food, increased volatility” in tax revenues, Valentine said. “These sales taxes are used to pay for the services that indigents need.”
Under Valentine’s proposal, an individual or family making less than $35,000 a year could get an $80 per person credit intended to offset the cost of sales taxes on groceries; a family making less than $60,000 would get $40 per person.
And working families who qualify for the federal Earned Income Tax Credit would get a state refundable credit of 5 percent of the federal credit. A family of five, for example, making $22,300 could qualify for as much as $5,891 federal tax credit and a $295 state credit. The amounts phase out based on income level.
Advocates for Utah’s poor and working families are divided on the change.
Linda Hilton, with Crossroads Urban Center, said the bill would help working families, but not retirees, disabled or the homeless. Many of those people would pay more for groceries through the year and not receive the refund because they don’t know to file for it, how to file for it or wouldn’t have an address to prove they were eligible for it.
“The poorest of the poor do not come out even. They lose,” Hilton said. “Everyone on Social Security loses. Everyone on disability loses. Everyone who is unemployed loses. Everyone who is homeless and out of work loses. A working family with children wins.”
She said families scraping to feed their families need whatever break they can get urgently and can’t wait until year’s end to receive a lump-sum payment.
“To get that at the end of the year, to say, ‘OK, in April everybody can have milk on their cereal, meat with dinner and a full plate, but, sorry, the rest of the year that doesn’t apply’ ” doesn’t make sense, she said.
The existing structure — with everyone paying a lower sales tax rate — is simple, fair and reaches everyone.
Alison Rowland, budget analyst for the group Voices for Utah Children, likes the proposed change because it would take the food tax break from middle- and upper-income Utahns and aid those who need help the most.
“There is no reason for higher-income people to need that tax break on food,” she said, “and that’s what this bill does is target low-income people.”
Including the $40 and $80 credits in the bill would help low-income Utahns who are retired, unemployed or disabled and aren’t eligible for the Earned Income Tax Credit because they don’t file a tax return.
Valentine also points out that food purchased with food stamps is not subject to sales tax, but he said they would still be eligible for the refundable credit because he recognizes that most families can’t feed themselves on what they receive in food stamps.
Hilton said the $40 a year would not begin to cover the sales tax a Utahn pays on food, even if they did receive some paltry amount of food stamps.
But she is concerned that the bill will get considerable support, especially in the Senate, because new Senate President-elect Wayne Neiderhauser, R-Sandy, supports the idea.
“I think it’s going to fly through the Senate,” she said, meaning opponents would have to fight the change in the House.
Food tax breaks around the nation
Only seven states tax food at the same rate as other retail products
Source: Federation of Tax Administrators