In the waning days of this year’s Legislature, Utah lawmakers came close to raising the sales tax on food — but pulled back, saying more study was needed. Now, some members instead are considering doing the opposite: eliminating the food tax.
The Revenue and Taxation Interim Committee spent hours Wednesday talking about challenges with the food tax — from it burdening the poor to difficulty distinguishing what is and is not a taxable food. Afterward, some suggested perhaps scrapping the tax.
Rep. Tim Quinn, R-Heber, said he figures that if the state raised its share of sales tax on other items from 4.7 percent to 4.95 percent, the sales tax on food could drop to zero — and solve many of the problems discussed.
“Perhaps that’s something that is amenable to all of us,” Quinn said, although he quickly clarified he is not yet advocating such a plan. “We could remove sales tax on food completely so the most needy amongst could be benefited.”
Sen. Jim Dabakis, D-Salt Lake City, plans to introduce a bill calling for wiping out the grocery tax.
“We’re really heartened to see people talking about this,” Bill Tibbitts, representing the Coalition of Religious Communities, which advocates for the poor, told committee members.
For the poor, such a change would mean “they could buy a gallon or milk or a loaf of bread” extra every week, said Bill Germundson, a social justice advocate working with the Crossroads Urban Center. “I would ask the committee to consider making a bold step” and eliminate the tax.
Tax reforms a decade ago dropped the state sales tax on food from 4.75 percent to 1.75 percent. Cities and counties charge additional sales tax on top of the state levy.
Senate leaders have pushed to restore a full sales tax on food, raising it back to 4.75 percent, saying it would reduce volatility in sales tax revenues between good times and bad — because food sales are relatively constant. A deal to do that fell apart just before this year’s Legislature adjourned, and leaders ordered more study of it this summer.
The committee is conducting that study and discussed a wide range of options Wednesday. It has reached no consensus on any of them.
Some of the options discussed include upping the sales tax on food to its previous rate; raising the tax but creating an earned income tax credit to help offset the burden for the poor; hiking the food tax but using the savings to lower the tax on other items; or boosting the tax only on some food items, such as candy or soda.
Research by the committee staff shows Utah is in a small minority of states that tax food. Thirty-two states exempt food, and another five have no sales tax at all, according to staff. Only seven states tax food at full rates; five of those offer income-tax credits for low-income residents.
Sen. Deidre Henderson, R-Spanish Fork, urged caution against any rush to restore the full sales tax on food.
“When times are bad, people still have to buy food,” she said. “That’s something the government loves about a food tax. … We still get our money. But that’s what is also so pernicious about a food tax: People have to eat. So I have a real concern about being cavalier about this.”
While some say an income-tax credit could help the poor escape harm from higher taxes on food, Henderson said many middle-class families who would not qualify for credits would find themselves forced to buy fewer groceries for their families.
“We need … to understand the human costs,” she said. “I have a problem with creating an entitlement program in order to offset putting tax back on food.”
Utah Tax Commission Chairman John Valentine, a former state senator, also opposed the idea of an earned income tax credit. He said the IRS figures about a quarter of its payments for a similar federal credit result from fraud, and he worries about similar problems.
Committee research showed that taxing food at the full rate would bring in an additional $207 million a year in revenue.
However, some — who see the food tax mostly as a way to reduce volatility in annual revenues — have proposed using extra money from the higher tax to lower the rates on all other items.
Legislative researchers said raising the sales tax on food would be revenue neutral overall if the overall rate on all items were reduced from 4.7 percent to 4.34 percent.
Dave Davis, president of the Utah Food Industry Association, said grocery stores would like to see food taxed at the same rate as other items because it would eliminate cumbersome rules to figure out what is taxable food.
For example, he said, crushed ice is considered a food but block ice is not. A Snickers bar is not considered food, but licorice is. At the very least, he urged lawmakers not to further complicate rules — such as by raising taxes on some foods such as candy or soda.
While the committee is seeking ways to improve state revenues, it spent Wednesday morning discussing draft legislation that could give a new tax break of nearly $57 million a year to manufacturing and mining companies.
The proposal would expand a current sales tax exemption on equipment. To qualify to escape sales tax now, manufacturing equipment purchased must have a design life of more than three years. The draft legislation would reduce that to one year.
Sen. Howard Stephenson, R-Draper, Senate chairman of the committee, said that would help attract more manufacturing companies to the state, or help them expand — and bring more jobs and income tax.
If Utah had not implemented similar exemptions in the 1990s, “our economy would be hurting extremely” because more businesses would have gone to states that offered them, Stephenson, president of the business-backed Utah Taxpayers Association, said. Other states now are offering more incentives than Utah, and “we need to be competitive.”
Dabakis warned that “the money has to come from somewhere” and said revenue lost by granting such a tax break likely would end up hurting schools.
He noted that long-term state projections of jobs that may be created by the tax break — about 750 initially and more over time — shows the proposed exemption “is not a significant impact to manufacturers, but it still is a very significant impact to state education.”