Sales Tax on Groceries Studied

 

A new study has found that taxing groceries can backfire.

In many states, sales taxes are not charged on groceries. Groceries are considered necessities, and while definitions can make it hard to tell just what is a taxable good at the Piggly Wiggly, most ordinary cooking ingredients aren’t taxed.

But there are 17 states (including Arkansas) that charge a lower sales tax for groceries, and seven that charge the same sales tax on groceries as on other tangible goods.

One of those states is Kansas, where the 6.5% sales tax on groceries is the highest in the United States. Add local taxes, and some residents in Kansas are paying 10.5% sales tax on carrots and potatoes. Except that they aren’t. A recent study commissioned by  KC Healthy Kids determined that a high proportion of Kansas residents find that it pays off to buy their groceries somewhere else. Those living near Colorado and Nebraska can cross state lines and pay no sales tax at all. Live in KC, Kansas? Drive to KC, Missouri and you’ll pay just a little more than 1% in sales tax at the grocery store. Oklahoma charges 4.5% sales tax on food, but that’s still a bargain for people near the Kansas-Oklahoma border. What’s more, people in high-tax jurisdictions the middle of Kansas can cut their sales tax bills significantly by driving to a different town or county, and they do.

Add online grocery sales — stocking up with Amazon’s Prime Pantry, for example — and it’s no surprise that grocery stores in towns bordering Kansas are doing better than those actually in Kansas. So the tax primarily affects those families that can’t save up enough to stock up on groceries or who don’t have transportation or gas money to escape the higher prices.

The study, conducted by the Kansas Public Finance Center at Wichita State University Hugo Wall School of Public Affairs, concluded that people are generally spending less on groceries. In Wyandotte county, for example, food purchases are down by $121 per person. But some families are actually getting less food per person, while others are just getting their food elsewhere.

The Institute on Taxation and Public Policy reports that poor residents in Kansas may pay up to 11% or more of their incomes for food, while more affluent residents average 3.6%. Obviously, grocery stores in the high tax areas are suffering along with the consumers. How’s the state doing? NBC reported that for 2013, Kansas lost $345.6 million in food sales and $21.2 million in lost tax revenue. The state sales tax was 6.15% at that time, and has since been raised to 6.5%.

Unintended consequences of sales tax decisions often lead to further changes, and that might happen in Kansas. Wherever you are, simplify your company’s sales tax compliance with SalesTaxDataLINK. Let us impress you with a demo of our patented sales tax solution.

Latest Articles

Sales Tax Software

Sales Tax Software

Sales tax calculations and filing can be done by hand. When you make a sale, you figure out whether the goods and services are taxable and whether you have nexus in the buyer's tax jurisdiction. More on that later. Once you've determined that you need...

read more
Customer Service and Your Sales Tax Solution

Customer Service and Your Sales Tax Solution

Sales tax is complicated. We've just gone through the annual flurry of back to school tax holidays, for example. If you're a remote seller of clothing, you probably sell mostly through retail. But you might have some direct to consumer sales. In some...

read more
Sales Tax Holidays for E-commerce

Sales Tax Holidays for E-commerce

A lot of our clients are manufacturers, contractors, or in some other industry that doesn't usually have to think much about sales tax. Retailers know they have to collect sales tax, and usually plan for it. We often hear from people who had no idea...

read more