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On Food Tax Cut, Another Option

A bill aimed at encouraging Tennesseans to eat healthier by eliminating the sales tax on unprepared foods like fruits and vegetables is headed to the House Agriculture and Natural Resources Committee next week.

But House Bill 484 still has a steep hill to climb before becoming law because of the huge estimated drop in tax revenue – more than $90 million for state and local governments. Still, Rep. Ron Lollar, chair of the Agriculture and Natural Resources Subcommittee, said there is a possibility some version of it could be rolled into Gov. Bill Haslam’s initiative to reduce the sales tax on groceries another quarter of a percent.

“The premise behind the bill is we can still be conservative fiscally and reduce sales taxes, but also incentivize Tennesseans to purchase the kinds of food that would help incentivize them to eat well,” Rep. Ryan Williams, the bill’s sponsor, told the committee Wednesday afternoon.

Williams explained that the bill would eliminate the sales tax on unprepared food such as fruits, vegetables, dairy, raw meats or “things that are called building block ingredients, like flour, dried beans.

For example, if someone bought a bag of apples, a fresh chicken and a gallon of milk for $10, she would pay only $10, not $10.53, which is what it would cost today with the 5.25 percent sales tax added.

“We’re 12th in the nation in obesity. Last year alone, we spent $216 million in TennCare alone just to treat diabetes among Tennesseans,” Williams said.

The Cookeville Republican acknowledged that the fiscal note “is huge,” but said he is working with the Department of Revenue on ways to reduce the amount or the foods on which the taxes would be eliminated.

The fiscal note, which is attached to the Senate companion, SB550, predicts that the net decrease in state revenue for fiscal year 2013-2014 would be almost $87.5 million, while the net decrease in local revenue for the same period would be $3 million.

Williams explained that one of the challenges with the fiscal note is that unprepared food can be defined differently in economics than they are to the consumer.

“For example, a Milky Way® bar is defined as candy, while a Twix® bar is defined as food because it has flour in it,” Williams said in an interview after the committee meeting.

However, he said that the Department of Revenue has given him some ideas on how to narrow the definition of unprepared food as it relates to the bill to have less impact on the reduction of revenues.

Lollar acknowledged that the bill could be killed once it reaches the finance committee of either chamber.

“We’re not saying that it would definitely fit in with the governor’s plan, but it would certainly have an opportunity with this bill to then go on and explore some items in the cuts that the governor’s already set forward.”

SB 550, sponsored by Republican Sen. Frank Niceley from Strawberry Plains, is on the Monday calendar of the Senate Tax Subcommittee of the Finance, Ways and Means Committee.

Amelia Morrison Hipps may be reached at amhipps@capitolnewstn.com, on Twitter @CapitolNews_TN or at 615-442-8667.