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F I S C A L I M P A C T R E P O R T

SPONSOR Neville

ORIGINAL DATE

LAST UPDATED

1/23/08

HB

SHORT TITLE Food Tax Retail Food Store Definition

SB 162

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(1,666.4)

(1,749.7) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

No Response Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 162 expands the definition of retail food store so that establishments with over 75

percent of sales attributable to bottled water, ice and coffee can receive the gross receipts tax

deduction for food enacted in 2004. The deduction only applies to food sold for home

consumption.

The effective date of this bill’s provisions is July 1, 2008.

FISCAL IMPLICATIONS

An analysis of the same proposal provided by TRD in 2007 estimated that taxable gross receipts

eligible for the proposed deduction for water, ice and coffee will be about $23 million in FY08.

Since that tax base was expected to grow by about 5 percent per year, the base would be $24.2

million in FY09. With an FY09 statewide gross receipts tax rate of 6.9 percent, revenue will be

reduced by about 1,666.4 thousand. Since local governments are held harmless from revenue

losses associated with the food deduction expanded in this bill, the entire revenue loss will be

borne by the general fund.

Senate Bill 162 – Page

2

SIGNIFICANT ISSUES

LFC notes that while individual deductions from the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

ADMINISTRATIVE IMPLICATIONS

TRD will potentially need to troubleshoot systems, revise forms and instructions, prepare

taxpayer education materials and instructions, and retrain personnel.

Implementation of the food and medical deductions has been unusually complicated and

expensive for TRD because of the programming needed to do hold harmless distributions for

local governments. Increasing the list of food items eligible for the food gross receipts tax

deduction will increase the cost of administering the local hold harmless distributions.

TECHNICAL ISSUES

The original intent of the food deduction enacted in 2004 was to include food for home

consumption as defined by the federal Food Stamp program. This bill would include receipts

from companies that sell water to businesses as well as to individuals for home consumption.

Companies delivering bottled water to both homes and businesses will have to separate home

and business sales to qualify for the deduction.

SS/jp