State lawmakers are considering a proposal to do away with the sales tax charged to unprepared food purchased at the grocery store. Discussions during the 2017 General Session earlier this year were leading to the restoration of the food sales tax to the statewide general sales tax rate of 4.7% but that conversation has now turned another direction.
In the Legislature’s Revenue and Taxation Interim Committee’s September meeting, Rep. Tim Quinn (R-Heber) revealed he is drafting legislation to eliminate the state sales tax charged on food and increase the overall sales tax rate to make the change revenue neutral.
Utah has a 1.75% sales tax rate on unprepared food. In addition, cities charge a 1% sales tax on food, and counties impose .25%. Rep. Quinn’s bill would not bind the cities or counties to eliminate their sales taxes charged to food, leaving that decision to each taxing entity to determine what is best for their constituents.
Additional tweaks are also being considered to the sales tax on food. Rep. Steve Eliason, R-Sandy, who is the House chair of the committee, at one point was considering eliminating the state’s portion of the sales tax on food but keeping the sales taxes charged on items such as candy, soda and dietary supplements.
While this change would minimize some of the financial impact the state may face by eliminating the sales tax on the other food items, it sets a tax policy which allows government to distort the market, altering consumer behaviors.
While Your Taxpayers Association would traditionally be in favor of the elimination of a tax, that is not technically what is taking place in this proposal. In fact, the proposal flies in the face of the concept of broadening the base and lowering the overall rate. Under Quinn’s proposal, the base will be narrowed and the rate increased.
Rather than eliminating the tax, lawmakers should consider other options.
To ease compliance for those who are required to collect and remit the sales tax (the retailers), lawmakers should consider aligning the general sales and use tax rate with the food sales tax rate. This would ensure stability in the sales tax yield as food is a common purchase, regardless of economic circumstances.
Concerns about the burden the food sales tax rate may have on lower income families can be addressed through existing government assistance programs, or by enacting an earned income tax credit.
Your Taxpayers Association is continuing to work with lawmakers to ensure the best policy comes forward in regards to the sales tax and the sales tax on food. Again, the best option would be to simplify the tax and to broaden the base and lower the rate. Other proposals being discussed may lead to additional taxes being collected to make up for the flaws that could be enacted into Utah’s tax code by these current proposals.