Taxing food items is a bad idea

Jan 30, 2013

There’s a lot of talk about tax reform in North Carolina. One plan being discussed by legislators would expand the sales tax on sales and services while abolishing the corporate and income taxes. The sales tax rate I’ve heard mentioned is around 8 percent — up from the current 6.75 percent, which includes a 2 percent local option tax and a 4.75 percent state tax.

One of the proposals being discussed would raise the total combined sales tax rate to 8.05 percent and would do away with the exemption on food items, which are currently exempt from state sales tax, but subject to a 2 percent local tax.

I decided to save a couple of grocery slips and see how an 8 percent food tax would affect our family budget. I'm not sure how typical my food-buying experience is. We raise our own beef, so the only meat I buy is chicken, pork, occasionally seafood and sandwich meat. We have simple breakfasts at home, and my husband packs a lunch on the days he works. I usually have fruit, yogurt or a protein bar for lunch, and we have home-cooked meals nightly. I also do a good bit of baking to share with others. Generally I cook for between three and four people. I also have a rule about going to the store. It happens once a week after church on Sunday. I find I buy far less if my store trips are limited.

Sorting out the sales tax amount on grocery bills is far more complicated than you might think.

First off, not everything you buy at the grocery store is food, so some of the items on your bill are already taxed at full rate. That amount is 6.5 percent, which includes a 4.5 percent state tax and a 2 precent local tax. Taxable items you might pick up at the grocery store include things like dish or laundry soap, vitamins, paper towels or tissue, cleaning products, cosmetics and toiletries and so forth. Also not included on the food exemption list, and rightfully so, are soft drinks, candy and tobacco products.

Last week’s grocery bill was $143.93, and by applying the state taxation rules the best I could, I figured $99.83 of the bill was for items considered food. The 2 percent local tax on those items amounted to $1.99. Had there been an state tax of 6 percent on top of that, the tax would amount to $7.98.

My next week's grocery bill was $81.12, and of that $76.24 was food. My total tax on that bill was $1.82, but if there was a total 8 percent tax on food, the amount would have jumped to $6.34. If my extra food taxes averaged $7 a week, it would add $364 a year to my grocery bill. That’s a big jump.

Food is an item most states exempt from sales taxes.

As of January 2013, a chart from the Federation of Tax Administrators shows that only seven states – Arkansas, Missouri, Illinois and Tennessee, Utah, Virginia and West Virginia, levy a state tax on food. West Virginia’s tax on food will be eliminated in July.

Only Tennessee’s 5.25 percent is anywhere near the rate being eyed in North Carolina. Most of the states that do tax food have rates of less than 2 percent. There are three other states, including North Carolina, where a local food tax applies.

Food is not a luxury item, but a necessity. That’s probably why most states in the nation have decided it is one of the few things that shouldn’t be subject to a sales tax. I’m hoping North Carolina leaders will decide (or be otherwise persuaded) to keep food items out of the mix of whatever tax reforms are ultimately chosen.