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Getting no grocery tax relief
Alabama, Mississippi alone in collecting full amount on food

By Phillip Rawls
Associated Press Writer

MONTGOMERY — This summer, Alabama and Mississippi are set to become the only states that apply their full state sales tax to groceries without any relief for low-income families, a distinction critics see as a holdover from their Deep South political past.

Arkansas had been in that category, but its Legislature recently voted to cut the state’s 6 percent sales tax in half for groceries. The tax break starts July 1.

All other states either exempt groceries from the sales tax, have a reduced tax on food, or provide a tax credit or rebate to low-income citizens.

“The fact that everybody pays the sales tax — even a little — appeals to political conservatives. What you see in Mississippi and Alabama is a legacy of that rationale,” said Ferrel Guillory, director of the University of North Carolina’s program on Southern politics.

Mississippi lawmakers wrapped up a legislative session in March, with a measure dying that would have reduced the state’s 7 percent tax on groceries and raised the state tax on cigarettes. Republican Gov. Haley Barbour opposed the tax change, saying the state still faces too much economic uncertainty after Hurricane Katrina.

Similar legislation passed a year ago, but Barbour vetoed it.

Legislation proposed

In Alabama, where the Legislature will be in session until June, House budget committee Chairman John Knight, D-Montgomery, has proposed legislation that would let people vote on whether to erase the state’s 4 percent sales tax on groceries. So far, it’s gone nowhere.

Knight said Alabama’s history helps explains why the state — with the lowest property tax in the nation — is still charging the full state sales tax on groceries, plus local sales taxes in most cities and counties that can push the total tax to as much as 10 percent on milk, bread and eggs.

“If you look back at the history of Alabama, it’s been the big landowners and big corporations who have controlled the Legislature. That’s beginning to change,” Knight said.

Knight proposes to replace $300 million the state receives annually from the sale of groceries by eliminating the state’s income tax deduction for federal income taxes paid. That would mostly cause households making more than $100,000 to pay higher income taxes, and the revenue would be greater than the tax cut on groceries.

Opposition from Riley

Knight’s plan is being opposed by Republican Gov. Bob Riley, who favors a middle-class income tax cut instead.

“I don’t think we should be raising taxes on a third of the people in Alabama — not with the economy doing what it’s doing today,” Riley said.

Riley’s prediction for Knight’s legislation: “I don’t think it could be passed.”

Knight won’t go that far, but he concedes, “It’s a difficult sell.”

Forty-five states levy a general sales tax, but 30 states exempt food purchased for consumption at home. Seven states (Illinois, Missouri, South Carolina, Tennessee, Utah, Virginia and West Virginia) tax groceries at a lower rate than other goods. Arkansas joins that group July 1.

Five states (Hawaii, Idaho, Kansas, Oklahoma and South Dakota) tax groceries fully but offer tax credits or rebates to low-income citizens. Those credits and rebates are usually a flat amount per family member.

So why haven’t Alabama and Mississippi joined the trend?

Poor states may have fewer sources of revenue to tax and they may be less willing to give up a tested revenue producer like groceries, said Charles Bullock, an expert in Southern politics at the University of Georgia.

Lowest property tax

Alabama has the lowest property taxes in the nation, so why not make up not make up the money from groceries with higher property taxes?

“Even for the less affluent, the property tax is less popular than the sales tax because the property tax bill comes as a single item, often not too far removed from the holidays. The sales tax is collected bit by bit, day by day, purchase by purchase,” Bullock said.

William Stewart, a political scientist at the University of Alabama, said Alabama relies on the sales tax more than its property tax because government officials can raise the sales tax without a public referendum. Increasing the property tax requires a referendum, which is always difficult, he said.

The debate over sales tax on groceries is not limited to Alabama and Mississippi.

Tennessee debate

In Tennessee, where the state’s general sales tax is 7 percent and the tax on groceries is 6 percent, Republicans have proposed creating a two-month sales tax holiday on groceries at the end of the year. Democrats want to permanently eliminate the state sales tax on milk, eggs and baby food. Democratic Gov. Phil Bredesen wants to spend more money on education and doesn’t want to cut the food sales tax at all.

Bill Ahern, communications director for the Washington-based Tax Foundation, said states should proceed cautiously when considering sales tax exemptions.

The more politicians add exemptions, “the higher the general sales tax rate has to be. And the higher the general sales tax rate goes, the more valuable those exemptions are, and the harder interest groups fight for them. It’s a vicious cycle,” Ahern said.

Guillory said that as the economy becomes more service oriented, states shouldn’t examine their grocery tax in isolation. They should look at whether they should tax services and then use the extra revenue to reduce their overall sales tax rate.

In Alabama, Knight’s plan wouldn’t impact the poorest citizens.

Alabama has 540,000 people — or about one out of every eight citizens — who receive food stamps, which are already exempt from state and local sales taxes.

A longtime lobbyist for Alabama’s poor, Kimble Forrister, said Knight’s plan would provide the most help to lower-middle-income citizens because their savings on groceries would far exceed what they would pay extra in income taxes.

“Of all the elements of tax reform, the proposal to reduce the grocery tax is probably the most popular. People don’t think we should tax the essentials of life,” said Forrister, executive director of Alabama Arise Citizens’ Policy Project.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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