Is it Time to Level the Tax Playing Field when it Comes to Food?

Kelsey O'Gorman
November 20, 2020

By Kelsey O’Gorman & Denise Hatem

In the United States, food is the third-largest expense for lower-income households, after housing and transportation. For higher-income households, food ranks fifth, following housing, transportation, pension contributions and health care. While income disparity can skew percentages of spending on essential items such as food and housing, there are also several taxes on the books that can increase the cost of food among those with the least amount of income to absorb the higher prices. This is an example of how the nuances of tax regulations can affect daily lives. Even though the differences may be subtle, the impact can be significant for those affected.

To make food more affordable for all, many states exempt food purchased for home consumption. State-enacted exemptions for food generally include items such as fresh produce and meats but typically exclude prepared foods and candy. Practically speaking, this means ingredients needed to prepare meals from scratch may be exempt from sales tax while certain prepared meals, often purchased by those who don’t have the access to or ability to prepare meals from scratch, are not.   

However, even in states with food exemptions, narrow definitions of “food” fail to ease the burden of sales tax in food deserts, defined as communities with limited access to healthy and affordable food.  Food deserts resulted from complex societal transformations, including the rise of sales tax. When states began enacting sales tax legislation, independent grocers in more urban areas suffered administrative difficulties and costs, forcing many to close. By contrast, chain grocery stores in high-income suburban communities were able to easily absorb these costs.

Failure of independent grocers left a void in lower income communities that was filled by fast-food restaurants and convenience stores. Today, United States Department of Agriculture (USDA) studies indicate that more than 23 million Americans live in low-income areas more than one mile from a large grocery store, and 2.3 million of those households do not have access to an automobile. Therefore, they are more dependent on convenience stores and fast-food establishments that offer limited food choices that are normally taxed.

This raises the question – why is there a taxability difference between unprepared food and prepared food? If the intention behind the food exemption is to lessen the burden on lower income families, shouldn’t “food” include any item made for consumption? This is the narrative that has been growing throughout the past few years. If the definition of food is expanded to include both unprepared and prepared food, it would level the playing field by placing less of an emphasis on food ingredients and meals made from scratch. 

Sovos is on a mission to Solve Tax for Good®, and we mean good in every sense of the word – so businesses can prosper and communities can thrive. As part of that mission, our regulatory team of more than 100 lawyers and experts tracks the trends, changes, discrepancies and implications related to tax legislation every day, in more than 100 countries. Get the latest updates in regulatory analysis news here.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Kelsey O'Gorman

Kelsey O’Gorman is a Regulatory Counsel at Sovos. Within Sovos’ Regulatory Analysis function, Kelsey focuses on global sales tax and VAT issues, supporting both the tax determination and reporting engines. Kelsey received her B.A. in Psychology from University at Buffalo and her J.D. from Roger Williams University School of Law. She is a member of the Massachusetts Bar.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America ShipCompliant
May 14, 2021
Alabama Is Latest State to Permit Direct-to-Consumer Shipping of Wine

Alabama Governor Kay Ivey signed HB 437 into law on May 13, 2021, making Alabama the latest state to legalize direct-to-consumer (DtC) shipping of wine. With this step, only Delaware, Mississippi and Utah continue to prohibit this popular and valuable means of selling wine. Alabama’s new DtC law will not become effective until August 1, […]

Tax Compliance Tax Information Reporting
May 14, 2021
Anatomy of a Due Diligence Letter

What is unclaimed property due diligence? An unclaimed property due diligence letter is an organization’s last chance at contacting an apparent owner and preventing their property from escheatment. Each state or reporting jurisdiction has its own unique set of requirements and standards. Due diligence letters are typically required to be sent 30 to 120 days […]

EMEA VAT & Fiscal Reporting
May 13, 2021
EU Council Approves DAC7 Rules on Digital Platform Tax Reporting

On 22 March 2021 the EU Council approved DAC7, which establishes EU-wide rules meant to improve administrative cooperation in taxation. In addition, the Directive addresses additional challenges posed by a growing digital platform economy. What is DAC7? In 2011, the EU adopted Directive 2011/16/EU on administrative cooperation in the field of taxation in the EU […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
May 13, 2021
Russia Introduces Mandatory E-Invoicing From 1 July 2021

Russia introduces a new e-invoicing system for traceability of certain goods on 1 July 2021. Federal Law No. 371-FZ will amend the Russian Tax Code to introduce the new procedure for the traceability system, which will bring the introduction of mandatory e-invoicing for taxpayers dealing with traceable goods. Since its introduction, B2B e-invoicing in Russia […]

North America ShipCompliant
May 12, 2021
Tennessee Set to Impose Regulations on Fulfillment Houses in DtC Wine Shipments

On May 6, 2021, Tennessee Governor Bill Lee signed HB 742 into law, establishing a slew of new provisions affecting the direct-to-consumer (DtC) shipping of wine in the state. These provisions, however, will not become effective until January 1, 2022. While the bill does impose several new restrictions and requirements on businesses involved in DtC […]