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Exempting Groceries – The Way Forward

Exempting Groceries – The way forward 

By David Ferguson 

Governor Sarah Sanders is proposing the elimination of the last of the sales taxes on groceries levied by the state. It is only a one-eighth percent tax, but it is a good move that Conduit for Action has been advocating for nearly a decade. 

Some legislators have indicated they would like to go further and exempt groceries from local sales taxes. Conduit for Action supports this too, but because the goal is unlikely to be politically attainable, Conduit has long suggested legislation that at a minimum would curb the growth of local taxes on groceries.  

While a bill to exempt groceries from local sales taxes would allow the sponsors to say, “I tried,” it wouldn’t accomplish anything else. All members of the Arkansas General Assembly know an outright exemption from city and county sales taxes has zero chance of passage. Why? Because every county judge and every mayor with a sales tax would be against the bill and might look for someone to run against a legislator who voted for such an exemption. 

If you want relief from local sales taxes on groceries, you need to encourage your legislators to take reasonable steps to restrain the ever-growing local taxes on groceries. There are positive steps the legislature could take that should have a reasonable chance of passing. I’ll list some ideas later in the column.  

One-Eighth State Tax on Groceries 

The state used to fully tax groceries but over several years the rate was reduced until groceries were exempt from all state sales taxes, except for a state one-eighth percent sales tax. This tax is on all items, not just groceries. It is levied in the Arkansas Constitution and the proceeds go primarily to the Game and Fish Commission and for parks and tourism. Maybe in general, you support this sales tax going for these purposes, but do you really want to support these programs by having shoppers pay the tax when they buy food for their family? 

Sales taxes are known as the most regressive of all taxes, and taxing groceries is seen as the worst of the worst. Sure, we are talking about only a small one-eighth percent tax but leaving it in place sends the wrong signal to Arkansans.  It is time for the state to complete the effort to exempt groceries from state levied sale taxes. Thank you, Governor Sanders, for taking up this cause. 

Local Sales Taxes on Groceries 

At the same time that the state was reducing its taxes on groceries, the local taxes on groceries were increasing. This means there has been less tax relief on food items than you might have expected. 

This does not mean your city and county have been picking on grocery shoppers. When voters approve a local tax, it applies to all taxable items including groceries. I do not recall there even being an option for a local government to exempt groceries from their sales tax proposals. 

It would be great if groceries were exempt from local sales taxes, but you would be hard pressed to find any city or county official who would say, “We have plenty of money for services and projects, so we don’t mind losing the revenue from exempting groceries from our tax.”  Local governments are more likely wishing they could receive more revenue, not less. 

This is why I think the way to address local sales taxes on groceries is to take a page out of former Governor Mike Beebe’s playbook. For many years there were efforts to remove groceries from taxation. Such efforts were opposed by local government officials who did not want to lose any revenue and by state officials who were concerned an exemption would cut too much revenue out of the state budget. The sales tax relief efforts had no success until Beebe came up with a plan to break down the problem in stages. He convinced the legislature to reduce the state’s levy on groceries by just a few percentage points.  He came back in another legislative session and did it again. As his second term neared the end, he convinced the legislature to adopt legislation to eliminate more of the state’s levy on groceries by making the provision effective only when the state’s general revenue reached a financial trigger point. The trigger was soon reached, and the cut became automatic during the first term of his predecessor. That left only the state levy on groceries as being the one-eighth percent tax. 

Just as Beebe successfully addressed the state tax on groceries by moving in stages, the legislature could address the local sales taxes on groceries in stages. The legislature could make progress even without taking any money away from existing local sales taxes. 

Here are some possibilities: 

  1. The tax laws could be revised to prohibit future local sales tax proposals from applying to groceries, while leaving existing local taxes in place.  Although this doesn’t provide any immediate relief, it would keep the problem from becoming worse and in some places provide future relief. Some local sales taxes are levied on a temporary basis, for example one imposed until a bond is paid off. Local governments frequently propose a new tax to replace the expiring tax. The replacement tax would be subject to the provision exempting groceries. 
  2. If the legislature is not bold enough to exempt groceries from future local taxes, perhaps the legislature would pass legislation making it harder for local governments to impose future sales taxes on groceries. The legislature could require that future sales tax proposals inform voters by specifically stating in the ballot title that the tax would apply to groceries and more importantly add a requirement that a sales tax applying to groceries achieve a much higher vote threshold, for example a three-fourths vote
  3. If the legislature is not even that bold, they could authorize local governments to exempt groceries from future sales taxes. 
  4. Another option would be to authorize local governments, or the voters by initiative petition, to exempt groceries from all or part of a sales tax imposed by the local government. Such a provision would likely only apply to sales taxes not dedicated to repaying a bond issue. 

The above are just four ideas on how the legislature could start addressing local taxes on groceries without taking existing revenue from local governments. The members of the Arkansas General Assembly are smart, and I’m sure these suggestions have already gotten some of them thinking of additional ways to curb local sales taxes on groceries. The only thing that doesn’t work is filing an all or nothing bill, knowing there is no chance of it passing. 

 

David Ferguson is a former Director of Arkansas’ Bureau of Legislative Research, having a thirty-two-year career as an attorney for the Arkansas legislature.  After retirement from state service, his primary focus has been beef cattle farming. He is also a former officer of Conduit for Action.

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