As the tax reform debate begins to heat up, businesses and investors are beginning to pay closer attention to the House GOP Tax Reform Blueprint, a tax plan released last June by Speaker Paul Ryan and House Ways and...
- The Tax Policy Blog
- What's Wrong with California's Sales Tax Exempt...
What's Wrong with California's Sales Tax Exemption for Groceries?
New regulations from the California State Board of Equalization (BOE) are supposed to clarify how grocers should tally their tax-exempt sales. Instead they inadvertently make a good argument for abolishing the tax exemption entirely.
Grocery tax exemptions have been sweeping the country on the flimsy argument that state sales taxes applied to groceries are unfair to the poor. In fact, the poor's groceries, when purchased with food stamps, are better than tax-exempt - they're free. If the legislature feels that food stamps are not reaching enough of California's poor, or that the stamps aren't worth enough to buy sufficient groceries, then California should expand its food stamp program and apply its general sales tax to all other grocery purchases.
Will there be some people just above the food stamp threshold for whom the tax will sting? Yes, but that demographic can be (and already is) targeted for tax relief through the income tax.
The damage done by the grocery exemption is considerable. It makes sales tax revenue much less stable, a major problem in California. It also forces up the tax rate on every other purchase: California's minimum sales tax rate of 7.25% is highest in the nation. And as for the complex business of how grocers must sort out what's taxable and what's not, the BOE regulations speak for themselves:
1. "Exempt food products" means those items generally described as food products in Section 6359 and Regulation 1602. If grocers are uncertain as to the classification of any product, they should contact the nearest board office.
Gee, that's not too helpful. If the BOE is so unclear about what's exempt, maybe they do better describing what must be taxed:
Grocers selling clothes, furniture, hardware, farm implements, distilled spirits, drug sundries, cosmetics, body deodorants, sporting goods, auto parts, cameras, electrical supplies, appliances, books, pottery, dishes, film, flower and garden seeds, nursery stock, fertilizers, flowers, fuel and lubricants, glassware, stationery supplies, pet supplies (other than pet food), school supplies, silverware, sunglasses, toys and other similar property should not include the purchases and sales of such items in the purchase-ratio method.
Actually, that's not too helpful either. Of the thousands of items not listed, which of them would be "similar to" farm implements, deodorant or sunglasses?
The complex BOE regulations go on and on, giving grocers advice on how to tally coupons, handling allowances, snack bars, gasoline sales, etc., etc. They describe the purchase-ratio method of calculating tax-exempt sales, the modified purchase-ratio method, the retail inventory method, and finally the mark-up method which includes this gem of a requirement:
Determine markup factor percentages by commodity groupings based on shelf tests covering a minimum purchasing cycle of one month within a three-year period.
But those aren't all the methods grocers can use!
List of Methods Not Exhaustive. The methods by which grocers may determine their sales of exempt food products are not limited to the methods described above.
How about this for an alternative method: All sales by grocers subject to sales tax unless purchased with food stamps. The tax rate could be lower, the revenue more stable, and the regulations much shorter.
Get Email Updates from the Tax Foundation
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
Related State Articles
- Lunch Links: Mnuchin Promises Tax Reform within First 90 Days of Trump Administration; Chopping Itemized Deductions Not Panacea in Trump Tax Plan; Massachusetts Latest State to Consider Soda Tax
- Lunch Links: Not So Sweet Soda Taxes Have Multi-City Appeal; Trump Includes Tax Reform in Efforts to Keep Carrier from Bolting; Christie Cites 'Blood Money' Tax Revenue in Shunning Marijuana Legalization for N.J.
- Lunch links: Mileage Vs. Gas Tax Experiment Begins in Colorado; Recounts Coming in Maine on Marijuana and Income Tax; Rhode Island Considers Catching Up with Neighbor States on Marijuana Legalization
- 1 of 111
- next ›