Many states exempt groceries from sales tax per the premise that food is a necessity of life. This is a poorly targeted exemption though in terms of helping low-income taxpayers. Higher income individuals spend more on food so get the bulk of the tax savings. If instead, groceries were taxed, tax relief could be better targeted to the taxpayers who need it via a refundable income tax credit based on income.
Idaho subjects groceries to sales tax, but offers a grocery credit on the personal income tax returns. The only variation in the amount of the credit is that it is $120 per year rather than $100 if the individual is age 65 or older. So, it is poorly targeted and includes the out-dated assumption that senior citizens have financial needs (not all do).
Recent legislative activity in Idaho called for repeal of the sales tax on groceries. The governor vetoed this effort due to the revenue loss and the fact that a refundable income tax credit exists to reduce the burden of the tax.
What do you think?
Should all states tax groceries and provide a refundable income tax credit based on need? Many states already provide an Earned Income Tax credit, so low-income individuals are already filing in most states even if they owe no personal income tax.
Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
1 comment on “Idaho Keeps Sales Tax On Groceries”
Florida does not have an income tax and does not tax groceries. I think all states should make food staples tax free regardless of income.
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