An Idaho family of 4 could spend $9,000 on groceries annually without paying sales tax

An Idaho family of four would receive $540 in a tax credit to offset sales tax on groceries under a proposal floated this week by Republican House Speaker Scott Bedke. That would be an increase from the current $400 that family of four receives.

Taking into account Idaho’s 6% sales tax, that means a family of four can purchase $9,000 worth of groceries per year without paying any sales tax. That comes out to about $173 in groceries per week.

That’s an increase from the current level, which offsets about $6,667 in groceries per year, or $128 per week. In other words, a family of four would be able to spend another $2,333 per year, or about $45 per week, in groceries without being penalized.

Currently, every man, woman and child in Idaho receives a $100 tax credit at tax time as a compensation for paying sales taxes on groceries. Seniors receive $120 per year.

Bedke’s proposal, introduced Wednesday in the House Revenue and Taxation Committee, would raise that credit to $135 per person for everyone.

This is a good plan, and we favor it over a complete repeal of the grocery tax, which could translate to an $80 million to $90 million loss to the state budget. Further, because the tax credit goes to Idaho residents, that means visitors from out of state still pay the sales tax.

Idaho’s grocery tax has long been a source of debate, and many people across the political spectrum have called for its complete repeal. It’s a regressive tax because low-income Idahoans pay the same rate as high-income residents. A person pays $6 for every $100 in grocery purchases, whether that person makes the minimum wage of $7.25 an hour or $1 million a year.

The credit helps offset that, especially if you spend less than what the credit offsets.

Here’s how it works.

Every time you buy groceries, you pay sales tax at the cash register. If you buy $100 of groceries, you pay $6 in sales tax, so your total bill is $106. If you spend $100 every week, you spend $5,200 on groceries every year, plus $312 in sales tax. When you go to file your taxes, the state of Idaho pays you $100 to partially reimburse you for that sales tax you paid. Under Bedke’s proposal, the state would pay you $135 every year.

Let’s say you spend a lot less than $100 per week. If you spend $50 per week as a single person, $3 is added to your grocery bill. Over the course of a year, you’d end up spending $156 in sales tax on groceries. Bedke’s proposed tax credit of $135 comes closer to fully compensating you. It still falls short, and the state still comes out to the good, but it’s a step in the right direction.

The state Division of Financial Management calculated the average Idahoan spends about $125 per year on sales taxes on food, so the $100 credit was too low. The $135 credit leaves enough wiggle room for taxpayers who might spend a little more on groceries (anyone with two high school-age student-athletes can tell you that they often overshoot that $173 in groceries per week).

The credit would cost the state $48 million to $49 million, Bedke said, but his proposal would use money from the state’s online sales tax fund, which is funded by sales and use taxes collected by retailers without a physical presence in Idaho. The proposal states there would be no impact to the state’s general fund or to county, city or other local government entities.

Bedke said Wednesday the online sales tax fund is trending at about $6 million to $7 million per month, and that’s not including the holiday season sales, so taking $50 million from the fund would be well within reason.

If anything, we’d like to see the credit increased even more to get closer to what people actually spend. Once we see how much money is coming in from out-of-state online sales tax, legislators might feel more comfortable increasing the amount. In the meantime, this is a step in the right direction.