Let’s talk about the grocery sales tax

Sales tax on groceries is an issue that comes up every legislative session. I believe most folks agree that we shouldn’t tax food. We require it for our subsistence. Why would we tax something that is a staple of life?

There are two methods of not taxing food. The first is simply to not collect the tax when selling food. This method does require distinguishing what is and is not food which is a tougher question than it first appears. The second method is to collect sales tax on all transactions, but then return a certain amount of sales tax back to the taxpayer at the end of the year. That amount should reflect the sales tax paid by the average resident for groceries during the year.

In Idaho, we have the second method in place and have had for decades. The grocery tax credit is available to all Idaho residents through the Idaho Tax Commission. Most people receive the tax credit when they file their Idaho income tax return on Form 40. It shows up on Line 43 of Form 40. For Idaho residents not required to file income taxes, the grocery tax credit is still available by filing Form 24.

The grocery tax credit is $100 per person. For a typical family of four, the grocery tax credit is $400. With a six percent sales tax rate, that means the family can buy $6,667 of groceries for the year and not pay tax on those groceries.

There is one bill this year to raise the grocery tax credit to $120. The same family of four could then purchase $8,000 of groceries with no tax paid. I would like to hear from people if they think $8,000 is somewhat close to the amount a family of four spends on groceries in a year. With the U.S. inflation rate now up to 7.5%, we are all feeling the pressure of ever-increasing costs.

I do hear from people who would like to switch to the other method of not taxing food. A number of states around us do not tax food at the cash register. There are pros and cons to switching. With no grocery sales tax at the register, it would be an exact system for each individual. You would not pay tax on food. However, Idahoans would end up paying more tax.

How is it that we would pay more tax? Idaho requires a certain amount of money for roads, police, jails, and judges based on the number of people in the state full-time and part-time. Right now some of that money comes from sales tax on food paid by out-of-state visitors. We know how tourism-oriented our economy has become. Do we want to foot the bill for services provided to people not paying state income tax?

Idaho collected just over $2 billion in sales tax last year. The reporting system doesn’t break out sales tax by category so we don’t know exactly how much is coming from food. Based on other states, about 12% of that $2 billion is from food sales. If that is the case, we are collecting about $240 million in sales tax on food. Of the $240 million, the most recent estimate I’ve heard is that about $19 million comes from sales to non-residents. If that money isn’t coming from out-of-state, it will come from in-state.

The decision to stick with our current tax credit system where we true up annually or switch to a system of not paying at the register is a policy choice. Either system can yield the desired result of not paying tax on food. I am open to input. Currently, I favor our current system which helps tourism pay for the services necessary to support tourism.

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Sen. Jim Woodward represents District 1, Bonner and Boundary counties, in the Idaho Senate. He can be reached at jwoodward@senate.idaho.gov.