Eliminating Sales Tax On Groceries A Nonstarter, But There's Some Agreement On Tweaking Tax Credit

September 20, 2021

Oklahoma is among just 13 states that still levy a sales tax on groceries, but there appears to be some agreement on addressing that.

Lawmakers, policy analysts and the Oklahoma Municipal League expressed interest during an interim study in altering a state tax credit established in 1990 to help offset the cost of groceries for low-income families.

"In 1990, the credit was $40 per household member. Believe it or not, the credit remains at $40 today, meaning that it's lost about 35% of its buying power in the last 30 years," said Oklahoma Policy Institute Health Care and Revenue Policy Analyst Emma Morris.

Eligibility for the tax credit is limited to people making up to $20,000 per year, or $50,000 if they are elderly, disabled or have dependents. Community Food Bank of Eastern Oklahoma State Advocacy and Public Policy Director Bailey Perkins said poverty and hunger go hand-in-hand.

"For more than 580,000 Oklahomans facing food insecurity, a daily meal isn't a choice between different dishes, it's a choice between food and essential needs like a prescription, car repairs and childcare," Perkins said.

Experts recommend increasing the grocery tax credit or indexing it to inflation to account for rising food costs, along with potentially expanding eligibility.

Oklahoma Municipal League Executive Director Mike Fina said increasing the credit or expanding eligibility is something the organization can get behind. Fina said because of state law requiring cities to use only sales tax revenue for their operations, getting rid of the tax on groceries outright would mean hits to city budgets with bigger impacts as cities get smaller.

"Oklahoma City can spread out a reduction of 10% over a larger economic engine, but every city gets smaller. And as we get down to some of the smallest of cities that all they have is a grocery store, you might be talking about bankrupting a city," Fina said.

It may still take years for lawmakers to agree on changes to the tax credit. Proponents of changing Oklahoma's tax policy on groceries say it contributes to one of the nation's most regressive state tax systems, where the bottom 20% of earners pay a higher percentage of their incomes in taxes than the top 20%.

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