A Meridian lawmaker is gathering support for his proposal to phase out Idaho’s grocery tax credit and use the savings to eliminate the entire sales tax on food.
Sen. Cliff Bayer, R-Meridian, said his legislation offers broader benefits than a competing House bill that would use surplus revenues to reduce the state’s top corporate and individual income tax rate.
“This really is a jobs bill,” said Bayer, who hopes to get a hearing this session.
House Republican leaders may block that effort, though, since they believe the income tax bill makes Idaho more competitive with surrounding states.
This is a debate that’s been going on for several years. It stems from 2008 legislation — sponsored by Bayer — that raised the annual grocery tax credit from $20 to $30.
The intent of the bill was to partially offset the cost of Idaho’s 6 percent sales tax on groceries. The credit continued to increase until it is capped out at $100 per person in 2016; it now costs the state about $140 million per year in lost revenue.
That’s nearly as much as the state collects from the underlying sales tax on groceries, Bayer said, so he thinks it’s time to get rid of both. He’s proposing a two-year phaseout. The net cost at full implementation would be about $53.6 million, including $38 million per year in lost tax revenue and $15.6 million to reimburse cities and counties for the reduction in their sales tax distribution.
By comparison, the income tax measure introduced by House Majority Leader Mike Moyle, R-Star, has an estimated cost of $51 million per year.
Bayer said his legislation is supported by several grassroots organizations, including the Idaho Interfaith Roundtable Against Hunger, the Idaho Hunger Relief Task Force and Idaho Organization of Resource Councils.
A letter signed by the groups said the original intent of the grocery tax credit “was to create a bridge, whereby both tax and tax credit could be phased out.”
“We believe exempting groceries from the state sales tax will increase access and affordability to food for all Idahoans, increase profits for our local farmers and food producers, and remove a competitive disadvantage for Idaho (border) communities,” they continued.
Bayer noted that Utah is the only neighboring state that taxes groceries. He said some smaller border communities, such as Fruitland, have lost their mom-and-pop stores because people can go across the border to Oregon.
Such stores “are meat and potatoes for a lot of small Idaho communities,” he said. Helping them stay in business, while also attracting national retailers to Idaho’s larger cities, lends an economic development aspect to his bill.
This is also the best time to eliminate the grocery tax, Bayer said. Given that the tax credit has capped out, the differential between it and the revenue from the sales tax on food will only increase. Waiting to eliminate the tax only makes it more expensive.
Moreover, the governor’s 2018 budget recommendation includes anywhere from $70 million to $110 million in surplus revenues, so he thinks the state can afford to do it now.
“In my opinion, this tax policy has the highest priority” compared to Moyle’s bill, Bayer said.
All tax legislation, however, must be introduced in the House. Similar legislation was stymied in 2014 and 2016, and it’s not clear Bayer’s bill will get a print hearing this year.
“We’d like the Senate to take up the bill they have in front of them,” said House Speaker Scott Bedke, R-Oakley, referring to Moyle’s income tax measure. “I’m optimistic that legislation will gain favor. The sales tax on food is an important component of keeping our tax structure fair and broad-based.”
The Senate could play a similar game, though. The House approved Moyle’s bill two weeks ago, but a hearing has yet to be scheduled in the Senate.
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