Eliminating grocery sales tax in Utah likely wouldn’t help low-income families, expert says

After a proposal to eliminate the food sales tax failed this year during the Utah Legislature’s regular session, despite advocates’ pleas, a national tax expert says ending the food sales tax likely wouldn’t help low income residents. (Kristin Murphy, Deseret News)

Estimated read time: 4-5 minutes

SALT LAKE CITY — After a proposal this year at the Utah Legislature to eliminate the grocery sales tax failed during the session despite advocates’ pleas, a national tax expert says ending the tax likely wouldn’t help low income residents.

Utah is one of just 13 states that still includes groceries “at least partially” in their sales tax bases, noted Jared Walczak, vice president of state projects with the Tax Foundation in Washington, DC

“Those 13 states are right. The challenge with this, of course, it’s just not a fun thing to defend,” Walczak said.

Food taxes arose as a larger issue over the past year due to inflation as everyone’s grocery bills have gone “way up,” he added, speaking during the Utah Taxpayers Foundation 2022 Taxes Now Conference in Salt Lake City.

Utah’s grocery tax

Although Gov. Spencer Cox proposed a $160 million grocery tax credit in his budget recommendation this year, lawmakers opted instead for a $193 million general tax cut, including $163 million for an across-the-board income tax rate cut for all Utahns, dropping Utah’s income tax rate from 4.95% to 4.85%, plus a $16 million nonrefundable earned income tax credit and a $15 million expansion for the state’s Social Security tax credit.

Some states, like Utah, tax at the “ordinary” rate of 3%, some tax at reduced rates, and some include groceries in their tax base but offer credits to lower-income residents, according to Walczak.

Despite the “understandable” desire to provide relief by taking groceries out of the sales tax base, Walczak said, a study done by the Tax Foundation found that doesn’t “help the lowest-income individuals.”

Those in the lowest income categories consume most of their income, he noted. “And they’re going to be consuming on a variety of things, but one very big item for a lot of people will be groceries.”

Based on the study, the bottom-third income bracket nationally saves just $2.50 per person on average each year with the grocery sales tax eliminated or decreased in states that have done so.

That’s partially because in the Supplemental Nutrition Assistance Program (SNAP) and Women, Infants and Children (WIC) programs — which many low income families use to purchase groceries — sales taxes don’t apply.

Prepared foods, such as frozen dinners, also aren’t considered groceries in any state. That means in states that have eliminated the grocery tax rate, prepared foods still get taxed. Walczak said that for lower-income families — for whom time has a significant value — the slight additional cost to buy food that’s already prepared still “weighs better” than groceries that don’t get taxed.

States can provide relief by implementing a lower across-the-board sales tax rate, or a higher rate with groceries out of the tax base, Walczak noted.

“We found that nationally, it actually helped the lowest income households … to have groceries in the base,” he said.

The study found that the lowest-income households experience 9% more sales tax liability with a grocery tax exemption compared to a commensurate general tax rate reduction.

Grocery sales tax elimination has benefited those in the middle income range the most, according to Walczak. Those people are more likely to buy more high-end groceries and see more of the effects of not getting taxed on that food, he said.

Lawmakers remain concerned about inflation

During Wednesday’s conference, the governor, Senate President Stuart Adams, R-Layton, House Speaker Brad Wilson, R-Kaysville, and others expressed concern about inflation and a potential recession.

“One of the levers that we can pull … to reduce the tax burden on every Utah family so they can keep more of their money, choose to spend it how they wish … to help deal with some of this inflation,” Wilson said.

Although the Legislature balanced its “largest budget in state history” this year, he said, the state’s dependence on sales tax to fund everything other than education creates a challenge.

“It’s really hard to take 33% of the state’s revenue and pay for all necessary and essential government functions, including transportation, those types of things,” he said, calling the issue “a significant roadblock for Utah in the near future and I think definitely in the long term,” he said.

A lifelong Utahn, Ashley Imlay covers state politics and breaking news for KSL.com.

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