Shoppers could save money on groceries if food tax ban passes. Here's why cities aren't sold.

The Arizona Republic
Tuesday, February 5, 2019
Paulina Pineda

Tempe resident Deloris Drebert stops by the grocery store several times a week to shop for her family of four. On a recent trip, she spent $35 and about 72 cents of her bill went to taxes.

“Just think, if every time I went to the store, instead of paying taxes I put that 72 cents in my pocket," she said. "That’s money that can go in the gas tank.”

Drebert and other shoppers could see their grocery bills get a bit lighter if a proposed bill that would eliminate sales taxes on groceries passes.

House Bill 2158, sponsored by Rep. Shawnna Bolick, a Phoenix Republican, would exempt food intended for home consumption from being taxed by municipalities. Food sold at restaurants would not be exempt.

Supporters argue food is a necessity and should not be taxed. The bill has not yet been heard in committee and Bolick declined to comment on the proposal.

Critics say the ban would shoot holes in city budgets. All but about 20 Arizona cities and towns tax food, collecting a total of $115.2 million annually, according to the Arizona Department of Revenue.

Drebert said saving a couple of bucks each trip to the grocery store would be good, but she suspects residents would pay for it in other ways.

“I just came from Texas and they don’t have income taxes but their property taxes have gone up so much more because of it,” she said. “If we had to do something like that, and it’s going to cause the property tax to go up or anything else, then I would be somewhat opposed.”

League: Bill could throw cities 'into a devastating hole'
Municipalities would be dealt a crushing blow if groceries were exempt from being taxed, said Ken Strobeck, executive director of the League of Arizona Cities and Towns.

Strobeck said the bill would overturn 80 years of tax policy because food has always been part of the tax base in most cities across the state.

“It would really throw a huge monkey wrench in the ability for cities and towns to balance their budgets,” he said. “This is a huge concern for us. This single bill could throw cities and towns into a devastating hole.”

Seventy of the state’s 91 incorporated cities and towns charge a sales tax on groceries, said Ed Greenberg, spokesman for the Arizona Department of Revenue.

Strobeck said rural communities, where the tax base is not as diverse, would be the hardest hit. In Mammoth, a town of about 1,600 residents in Pinal County, the food tax makes up 29.7 percent of the town’s revenue, while grocery sales make up 24 percent of the budget in Springerville, a small town in the White Mountains.

Neither the state or its three largest cities — Phoenix, Tucson and Mesa — tax food.

The state eliminated its food tax in the 1980s.

RELATED: Tax break proposed for diapers, formula and tampons sold in Arizona

Mesa voters repealed the tax in 2000. A controversial food tax in Phoenix to help the city cover a record $277 million budget shortfall expired in 2015 after a five-year life span.

Food tax rates across the state vary from 1.5 to 4 percent, meaning shoppers pay $1.50 to $4 in taxes for every $100 of groceries, according to DOR data.

The tax makes up anywhere from less than 1 percent of a municipality’s budget, as is the case in Dewey-Humboldt and Paradise Valley, to nearly 40 percent in Winkelman, a small town on the Gila and Pinal county border.

Food purchased with state and federal assistance, such as the Arizona Women, Infants, Children and Supplemental Nutrition Assistance programs, are already tax exempt.

Shrinking tax base
Strobeck said the state Legislature is annually flooded with requests to exempt certain items from being taxed. The more items that are exempted, the deeper cities must reach to make up the difference in lost revenue, he said.