Repealing the grocery tax: What do businesses say? 

For several years, some legislators and citizens have pushed Idaho to stop charging sales tax on groceries. Proponents say it’s inherently regressive, because lower-income people pay more of their income on groceries than do higher-income people, and it’s immoral to charge sales tax on something people need to survive.  

But businesses — particularly businesses collecting the sales tax on groceries — aren’t in favor of the idea.  

“There’s this huge advantage to keeping our tax structure simple, and that’s primarily where all our retailers stand,” said Pam Eaton, president and CEO of the Idaho Retailers Association.

What is Idaho’s grocery tax? 

As of 2020, Idaho is one of 13 states that charges a sales tax on groceries, according to the Center on Budget and Policy Priorities (CBPP). 

The state offsets this by providing a grocery tax credit averaging $100 per person, according to the Idaho State Tax Commission. People get this credit by requesting it on their state tax form. Three other states — Hawaii, Kansas and Oklahoma — also provide such a credit. 

Over the years, there have been several attempts to eliminate the grocery tax. Politicians have even campaigned on the issue. It hasn’t happened yet. The closest was in 2017, when the Idaho Legislature repealed the grocery tax and then-Governor C. L. “Butch” Otter vetoed it. 

What are groceries? 

Businesses selling food to be consumed at home (as opposed to restaurants, which sell food to be consumed on-site) collect sales tax on food and pay the state. And that’s where the problem comes in, Eaton said. 

“Right now, Idaho’s tax structure is one of the easiest in the nation,” Eaton said. “Everything’s taxed at the same rate.” 

Moreover, some states that don’t tax groceries have added taxes onto other items that could be considered groceries, in an attempt to discourage consumers from, well, consuming them — such as candy and soda, because they’re considered unhealthy — or to raise revenue. 

The problem is it isn’t always easy to determine what something is, Eaton said. “Is a Twix bar a cookie or candy?” she said. “Pretty soon you have people picking and choosing from manufacturers and making it an uneven playing field. If you want to take it off food, take it off all food and say you’re not going to come back every year because ‘something is unhealthy’ or ‘we need more revenue.’” 

While some have suggested defining “groceries” as foods eligible to be purchased under the Supplemental Nutrition Assistance Program (SNAP), it’s not that simple because some stores differ on what they consider eligible. 

And bringing sales tax into the equation would exacerbate that, Eaton said. SNAP is run by the Idaho Department of Health and Welfare, while sales taxes are run by the Idaho State Tax Commission. “Health and Welfare isn’t like the Tax Commission,” she explained. “They don’t audit. If someone complains, they might pick up the phone and call the retailer and then the retailer can change it.” And there’s no penalty unless the offense is egregious or repeated, she added. 

“The Tax Commission would not be like that,” Eaton continued. If a store didn’t think deli sandwiches should be taxed, and the Tax Commission disagreed, it could calculate what it thought the retailer owed in sales tax on deli sandwiches since the passage of the law and present the retailer with a bill for that amount, she explained.  

Convenience stores took the same position a couple of years ago the last time there was such a bill, said Suzanne Budge, executive director of the Idaho Petroleum Marketers and Convenience Store Association. “Convenience stores are a dynamic and challenging business with tremendously high turnover,” she said. “Taxability adds complexity they don’t need.” 

Moreover, with COVID-19, lines between stores and restaurants have become increasingly blurred, with both offering meals for pickup to be heated up at home. “Look at Albertsons Marketplace and Whole Foods and restaurants that are doing family-style takeout,” Eaton said. “Why is one taxed and the other isn’t?” 

Vendor allowance 

In addition, eliminating the sales tax on food could end up costing the state money. Because calculating sales tax is complicated, 27 states offer a “vendor discount” to retailers to make up for the effort of calculating it. It ranges from 0.25% for Nevada to 5% for New York, and the amount is typically capped at a per month or per year amount for each retailer. 

Idaho is one of 18 states (the other five don’t charge sales tax) that doesn’t offer a vendor discount. “We are the state’s tax collector, and we do it for free,” Eaton said. 

That hasn’t been a problem because Idaho’s sales tax structure is relatively simple, Eaton said. But if it became complicated, retailers would want to change that, she said. “We want to make sure if anything is passed that everything that’s gray is black-and-white — fully defined in statute, and a vendor allowance because you’re making things more complicated.” 

The border issue 

Of the six states surrounding Idaho, only Utah charges sales tax on food, and it charges a lower rate. Some who have supported eliminating the grocery tax say Idaho cities and counties on state borders are hurt because consumers go to those other states to shop.  

But that’s not the biggest issue for the cities and counties, representatives say. The Association of Idaho Cities hasn’t taken a position on grocery taxes because its members differ on this issue, said Kelley Packer, executive director of the organization, in an email message.

“We are interested in the debate on  grocery  tax  only to the extent that it impacts county revenues,” said Seth Grigg, executive director of the Idaho Association of Counties, in an email message.  

“During state fiscal year 2021, approximately $273 million was distributed to local governments,” Grigg said. “Part of the $273 million comes from sales  tax  generated from  grocery  purchases, so any reduction in sales taxes collected from  grocery  sales will reduce the amount of sales  tax  revenue sharing distributed to local governments,” though he didn’t know how much of that was attributed to groceries. 

Consequently, “We would have no problem with a bill that eliminates the sales  tax  on groceries as long as the bill provides replacement revenue from another source for the lost sales taxes,” Grigg said. “We would have to evaluate our position on any bill that does not replace lost sales  tax  revenues to counties, as such a bill would likely result in counties having to raise property taxes to offset the loss of sales  tax  revenue.” 

And grocery taxes aren’t an issue for border retailers either, Eaton said. “Even grocery stores that sit on borders that don’t have the tax feel like they don’t lose out enough to weigh out what the trouble might be if we start having a complicated system,” she said. 

Would it actually help the poor? 

Finally, eliminating the grocery tax might end up hurting the very people it is intended to help — the low-income, said Alex LaBeau, president of the Idaho Association of Commerce and Industry (IACI). 

That’s because eliminating the grocery tax would also eliminate the grocery tax credit, and lower-income people generally make more on that than they spend on grocery taxes, LaBeau said. In particular, people who receive SNAP benefits are already not taxed on those items, he said. “That would be a net tax increase to them of a fairly substantial amount,” he said. When IACI last calculated the figures, in 2017, a family of four would need to spend about $7,000 per year, or $600 per month, to make it break even for them, he said.  

“It sounds really good, but nobody’s put together a plan that makes holistic sense at the lower-income level,” LaBeau said.