Six states (Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia) tax groceries at lower rates than other goods.Thirty-two states plus the District of Columbia exempt most food purchased for consumption at home from the state sales tax.Most have eliminated, reduced, or partially offset the tax as applied to food for home consumption. Most States Offer Tax Breaks for Groceries Holdouts Should Follow Suitįorty-five states plus the District of Columbia levy general sales taxes. This can raise substantial revenue but weakens the anti-poverty impact of eliminating grocery taxes, since sales taxes also fall hardest on low-income families as a share of income. States shifting away from grocery taxes in the past have often chosen to raise their sales tax rate to help pay for the loss of grocery tax revenue. family spent just 7 cents of each consumption dollar on food for home consumption, down from 20 cents in 1960. That’s because spending on food for home consumption as a share of total spending has dropped dramatically over the past half century. The inclusion of food purchases in state sales taxes has also contributed to the long-term decline in sales tax revenue as a share of a state’s economy. Options include broadening the sales tax base to include more services, enacting an “Amazon law” to require large online retailers to collect sales taxes that are legally due on online purchases but that retailers otherwise aren’t required to collect, extending the sales tax to Internet downloads (such as software and music), and closing a tax loophole that allows online travel companies to collect taxes on only part of the sales taxes due on hotel room booking.
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They can also tweak their sales taxes to keep pace with a changing economy. For example, states can eliminate tax breaks for special interests, raise tax rates for high-income households, or expand taxes on profitable corporations. States that tax groceries or are considering doing so have better ways to raise the revenues needed for public investments. For instance, Oklahoma’s credit of $40 per person in the household has not changed in at least three decades. Further, the value of these credits declines over time as food costs rise, since no state with a credit today adjusts it for inflation and some have not increased it in many years. In addition, the sales tax is paid at the time the food is purchased, but tax credits are paid annually in a lump sum, so they don’t help low-income families make ends meet on a monthly basis. These credits may be too small, available only to some low-income people, or require families to know about the credit and fill out a form or file taxes (even if they otherwise don’t need to) to apply for it. Taxing groceries and then offering a tax credit to low-income families is less expensive for states than a full exemption but typically fails to offset grocery taxes for many people in poverty. As a result, most SNAP households must use cash for a significant part of their grocery purchases since SNAP benefits usually don’t cover the full cost of a family’s basic diet. In addition, substantial research finds that SNAP benefit levels are not sufficient to meet the nutritional needs of most low-income households. Other income (from earnings in the first case or Social Security in the second, or from other sources) would need to cover any food purchases above these households’ SNAP benefits. For example, the typical working family with children that participated in SNAP in 2018 received a SNAP benefit of about $320 a month the typical household with an elderly member received $120 a month. First, SNAP benefit rules assume that a portion of a household’s other income will be used to purchase food. Moreover, even when households do receive SNAP, for most their SNAP benefits do not cover all of their food purchases.
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įederal law exempts grocery purchases made using SNAP (food stamp) benefits from sales tax, but not all low-income families are eligible to receive SNAP benefits and not all households that are eligible for SNAP participate. For the highest-income families, it is the fifth, after housing, transportation, pension and Social Security contributions, and health care.
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For the lowest-income families, food at home is the third-highest expenditure category as a share of income, after housing and transportation. (See Figure 2.) Overall, the higher the income bracket, the smaller the share spent on food at home. The lowest-income fifth of families spend almost twice the share of their annual income on food at home that the highest-income fifth do: 10.3 percent versus 5.7 percent. Sales taxes on groceries have an especially harmful impact on income and racial inequities since low-income families tend to spend a larger share of their income on groceries.