Grocery Taxes Face Reckoning Amid High Inflation

Thirteen states across the U.S. that charge sales tax on groceries are experiencing a reckoning amid the cost of living crisis and high inflation, with many trying to phase the practice out, or completely eliminating it to help their struggling citizens.

A sales tax on groceries currently exists in Alabama, Arkansas, Hawaii, Idaho, Illinois, Kansas, Mississippi, Missouri, Oklahoma, South Dakota, Tennessee, Utah, and Virginia. The tax means that in these states, consumers pay a tariff on their groceries on top of the cost of their daily or weekly shop.

The sales tax on groceries varies significantly between these states, for instance going from 0.1 percent in Arkansas to 7.0 percent in Mississippi.

With inflation being higher, "people really noticed these tax cuts, because they go to the grocery store every week," Andy Harig, vice president of tax, trade, sustainability and policy development at the Food Industry Association (FMI), told Newsweek.

It is not a life-changing difference, he said, but for lower income families—which are hit harder by these kind of sales taxes because they spend more of their income on groceries compared to wealthier househoulds. "Not paying that extra 3 to 5 percent [in tax] can help them a little bit and can make it better for them," Harig said.

"They can get an extra peanut butter sandwich, get an extra loaf of bread to feed their family—that could be significant," Harig said. "But overall it's not a life-changing impact for consumers and it's a relatively modest hit to state budgets."

Only Alabama, Mississippi, and South Dakota of the 13 mentioned states still tax groceries at the state sales tax rate.

As the cost of living has increased in the past year, with inflation reaching a peak of 9.1 percent in June 2022 and now hovering around 4 percent, more than half of these states are reconsidering whether they should be taxing their residents so much—or at all.

Kansas, for example, is fading out its grocery tax, after dropping the rate from 6.5 to 4 percent at the beginning of this year.

Virginia dropped its sale tax to 1 percent at the beginning of the year. Alabama, Hawaii, Missouri, Oklahoma, and Utah are currently considering tax cuts. In Kansas and Oklahoma the proposals have obtained bipartisan backing.

From July 1, 2022 to June 30, 2023, Illinois offered its residents a years-long break from paying tax on groceries to offer some relief from inflation. The end of the tax suspension was met with criticism as people in Illinois are now expected to pay the tariff for gas and groceries.

While those who oppose cutting sales taxes on groceries usually say that eliminating them would leave a hole in state budgets, Harig said that the initiative generally receives bipartisan backing and is generally a political win for both parties.

"Even people who really recognize the value of taxes don't love them," Harig said. "So eliminating the sales tax on groceries creates a little bit more of an upbeat attitude at the point of sale at the cash register. I think that's always a positive thing."

Eliminating sales tax on groceries tends to be a popular initiative across the political spectrum and across all income spectrums, urban or rural, Harig said, and particularly if inflation stays high.

"This is a way to help cut the cost of some of those inflationary increases. So I think in the near-term, we'll continue to see the phasing out of this tax."

Illinois state Republicans said that the fact that the Democratic leadership of Illinois was not able to do a repeat of the relief means that the policy was a $1.8 billion-worth gimmick meant to galvanize their electorate.

"Illinois is the highest-taxed state in the nation, a status that only became worse on July 1 with the renewal of the grocery tax and another hike of the gas tax," Don Tracy, Chairman of the Illinois GOP, told Newsweek.

Talking to reporters late last month, Democratic Gov. J.B. Pritzker said that the tax break "was a temporary measure because we had very high inflation. Inflation, you may notice, has come down. But we had very high inflation. We wanted to do everything that we could."

According to Pritzker, the tax was also reintroduced to meet the needs of local and county governments. "It is a matter of local governments and what they would do if they didn't have that income as a result of the grocery tax," the governor said.

Despite the setback in Illinois, Harig thinks that the phasing out of the sales tax on groceries will likely continue, "probably at a slower pace and states will probably be a little bit more careful in how they look at longer-term revenue projections and what they're going to need to fund the spending that they have."

Newsweek has contacted the Kansas GOP and Democratic Party, the Virginia GOP and Democratic Party, and the Illinois GOP and Democratic Party for comment by email.

Correction 7/6/23, 2:45 a.m. ET: This article was updated to correct Andy Harig's job title.