Cities mull the ethics of taxing groceries
By David Grant Long
If you drive a car, I’ll tax the street If you try to sit, I’ll tax your seat...
Since the Beatles’ George Harrison penned those bitter lyrics in 1966, not much has changed. Governments still rely on taxes to pay for the services they provide.
And citizens still debate which kinds of taxes, if any, represent the fairest way of making the populace share the burden.
Is it moral, for instance, to tax the absolute necessities of life — such as food?
The state of Colorado long ago said no. But many municipalities within the state think differently.
A sales tax on retail merchandise and services is the base of revenues for many municipalities in Colorado, where counties and school districts rely mainly on property taxes for their spending money, and the state takes two generous bites of the tax-revenue apple with both an income and a sales tax on residents.
One criticism of sales taxes at any level is that they are “regressive” — i.e., they disproportionately impact low-income taxpayers — as opposed to, for example, “progressive” income taxes under which those who earn more pay more in taxes. For example, in Cortez, which has a 4.05 percent local sales tax that is assessed on food items, a family with an annual income of $20,000 that spends $100 a week on food, or about a fourth of its income, will pay $234 tax to the city on that food, or roughly 1 percent of its total income. But a family with an annual income of $200,000 that eats the same amount will be taxed only one-10th of 1 percent of its income.
At one time the state also taxed groceries, and had a rebate program for low-income people in which they would submit their yearly grocery receipts and get a refund on the tax paid on food. Finally the state legislature abandoned the practice of taxing food altogether. Now the state’s 2.9 percent sales tax is not charged on food purchased in a grocery store.
However, 20 states still do tax groceries. Most of those tax them at a lower rate than other goods, or offer some sort of rebate to lower-income citizens. Three states — Alabama, Arkansas, and Mississippi — don’t do either, according to the Center on Budget and Policy Priorities.
However, for many cities, the sales tax on food represents a sizeable portion of their tax bases and the chance of their following the states’ lead by exempting food is highly unlikely.
In Cortez, the sales-tax revenue from food amounts to about a quarter of all sales-tax revenues collected, or more than $1 million, according to Finance Director Kathi Moss.
She stressed that hers was only an educated guess, since the total sales-tax revenue is not broken down into such categorties and the taxes paid by individual businesses are proprietary information at any rate.
But the three largest revenue producers — Wal- Mart, City Market and Safeway — alone accounted for 43 percent of the total sales tax paid in 2006, she said, as the total sales-tax revenue for Cortez has surged about 10 percent over the previous year’s, due in part to inflation as well as increased sales.
To adjust for what is seen by many as the inequity of the sales tax, some Colorado cities are doing as many states have done, adopting various forms of rebate programs for lowincome and/or senior citizens, particularly as they have increased the amount of sales tax for special projects such as jails and recreation centers.
For instance, in Durango, when voters approved a sales tax increase from 2.5 percent to 3 percent in 2005 for creating more open space, trails and a variety of capital improvements, the city council committed to creating a rebate program if the tax hike was approved.
“During the election to increase the sales tax by a half-cent, there was some discussion from people in the community that they felt that lowincome people shouldn't be affected by it,” said Sherry Eilbes, Durango's finance director, “and [asked] would the city entertain the idea of having a food-tax rebate.
“So the city [council] checked into it and decided, yes, they would indeed like to do a food-tax rebate program,” Eilbes said, “and they did actually implement the program and made it contingent upon the vote on the passage of the increase of the sales tax.
“So it wasn't actually voted on — the council put the program in place, but made it contingent on the successful passage of the half-cent tax.”
Durango’s rebate schedule ranges from $50 for a single resident with an income of $20,800 or less to $144 for a family of four or more with an income of $29,700. Eligible applicants must show proof of income, residency and family size to qualify.
That program began accepting applications for rebates in March for rebates for the year 2006.
Eilbes said since this was the first year for the program, it is difficult to project what it may cost, but they are anticipating possibly 600 applications by the end-of-June deadline.
“We don't have a real good idea of how much will go out, but we haven't limited what the [total] rebate will be,” she said, explaining that $75,000 had been budgeted for the program.
“That was just based on discussions we had with the cities of Boulder and Loveland and their programs and how much ultimately ended up being rebated back — so we made a somewhat educated guess based on other cities in Colorado.” She said other cities, such as Loveland, set a maximum amount that will be rebated in the budget.
"We may do that at some point if it gets to be a real large dollar amount,” she said. “However, I don't think that will happen.”
Durango also has a utility refund program for the poor on sewer, trash and water service, she noted, and surprIsingly few residents take advantage of that.
“We've had that in place for many years and quite honestly there are very few people who take advantage of it, so we'll see how many people will qualify or even apply for the food-tax rebate.”
In Cortez, at least two members of the city council recently expressed interest in creating a rebate program here, and one suggested he would ask it be placed on the workshop agenda for discussion.
Second-term council member and former Mayor Pro Tem Gene Glover said he would be willing to broach the idea at a council workshop.
“I would never close my eyes to any program that would help anybody,” Glover said. “I wouldn't be opposed to looking at it [but] whether it would come to fruition, I don't know. I don’t know how everybody would vote on it, but I would definitely take a look at it if we could get it in front of the council.
“I'd like to sit down and visit with everyone else [on the council] and see what they thought. “If we're going to take a look at it, we probably need to put together something formal — or even informal — for a [council] workshop.” Glover said possibly some discussion could take place as early as May.
Matt Keefauver, a middle-school teacher and business owner elected to the council in 2006, said it was “definitely something I would support, although I'm not 100 percent sure how it would work or what it would look like.
“But I do know we have a lot of people who would benefit from something like that.
“I really do think that’s a good idea and it's something I would support in whatever form it takes,” Keefauver added. “As a teacher, it's something I see first-hand all the time — how families struggle and kids coming to school wearing clothes with holes in them, no breakfast . . .
“It's pretty sad.”
Rebates and eligibility requirements vary from city to city in Colorado:
• Boulder, with revenues of about $10 million from taxing food, gives $66 to elderly and disabled singles and $199 for a family, regardless of size, that meets the income guidelines and other criteria.
• Fort Collins program provides $40 for each person meeting the requirements, and single folks must earn less than $24,200 to be eligible, In Loveland the rebate is $70 per person for up to four people in a household, and in Greeley the amount per person is set at $45. The towns also treat those poor receiving food-stamp assistance differently, with some factoring that tax-free source of food into the equation and others using only the income criterium.
Last year the rebates cost Boulder about $81,000, Fort Collins $66,000, Loveland $78,000 and Greeley $80,000.
The city of Greeley has had a foodtax rebate program for 15 years.