A police officer or a gallon of milk? Citywide bus service or wheat bread?
Would low-income families benefit more from the services cities provide or paying less for food?
Those questions are at the heart of the debate over whether to eliminate the sales tax when purchasing food from the grocery store. Proponents say families on a budget could stretch their dollars further while still contributing to the local economy. Opponents claim the tax exemption would devastate city budgets and reduce services not just for those in need, but for all citizens.
The problem in deciding which side of the debate has the upper hand is trying to figure out the numbers. Opponents say it is too difficult to understand and too inconsistent on when the numbers count and when they don’t. Proponents shout to “get into the 21st century,” arguing that between computers and bar codes, finding the numbers is easier than slicing deli meat.
“A majority of states already do this, so we’re not talking rocket science here,” said state Sen. Jay Paul Gumm, D-Durant, elimination’s biggest proponent.
Gumm’s opponent in the debate, Oklahoma Municipal League Executive Director Carolyn Stager, firmly plants her position as deep as a potato root.
“Until there is a more fair and equitable funding source for Oklahoma cities and towns, we would have no choice but to continue to oppose,” she said.
Cue John Belushi: food fight!
Different year, different billThe fight over the grocery tax is practically done for this legislative session. Gumm’s measure, Senate Bill 1328, made it through the Senate, but failed to get a hearing in the House of Representatives. However, Stager knows at some point there will be another round.
“It’s like weeds in your yard,” she said. “You kill it one year, and it comes back the next year.”
That’s because this has not been Gumm’s first attempt at reducing the cost of food. In 2006, he proposed to wipe out the grocery tax. His proposal was the one to get wiped out. A year later, Gumm tried to just cancel the state sales tax on food. The measure went away. He tried again last year for an all-out elimination of the tax ” same result.
Last year, the House tried its version of food tax elimination, a measure that would have nearly phased out the tax by 2017.
“That’s a pretty timid way of doing this,” Gumm said. “You either have to do it all or not at all. And I will always be on the side of ‘We have to do this.'”
That House bill suffered the same fate as Gumm’s efforts.
To try and sweeten the pot, his recent version came with a trigger clause: The tax would only be eliminated when state revenues surpassed 10 percent of 2008 spending levels. But once in place, SB 1328 would have eliminated all sales tax ” both state and local ” on grocery-bought food.
Laura Johnson, Oklahoma City finance director, still found the formula confusing.
“It’s almost impossible to predict what the impact would be on the city because the law would not go into effect until the sales tax dollars exceeded the sales tax dollars of 2008,” Johnson said. “We don’t know if that will be 2011, 2015, 2020. We don’t know when that is going to happen, so I can’t just go into the MAPS tax and forecast.”
Oklahoma City’s Metropolitan Area Projects is calculated on sales tax revenue projections over a period of years. Not knowing which of those years the sales tax on certain food items disappears could make budget planning unscientific.
Johnson said the city has done scant cost analysis on how much revenue would be lost with groceries not taxed, because of the uncertainly of the bills.
“In the past, when they talked about eliminating the grocery tax, we estimated that would affect the city’s general fund (by) about $22 million,” she said. “That’s a really rough guess, because people don’t just report sales tax on groceries.”
There are many categories of sales tax revenue that merchants report to the Oklahoma Tax Commission. Johnson said depending on how groceries are defined can affect the tax collected.
“Is it milk and bread? Is it milk and bread and toilet paper? You get all that stuff at the grocery store. A Walmart Supercenter doesn’t report as a grocery store” to the tax commission, she said. “They report as a general merchandise store. But if you buy milk and bread at Walmart, it would be tax-exempt. That’s part of my concern: How will it be determined?”
This is where Gumm would shake his head and say, “Welcome to the new millennium.”
“With modern computer technology, it is very simple to determine the level of nontaxable sales at any retailer,” he said.
For instance, at some drugstores, like Walgreens and CVS, the register can pinpoint which items being sold are eligible for medical flex accounts ” personal reimbursement accounts available through health-insurance plans for buying medical items like aspirin or bandages. When the receipt is printed out, the letter “F” is stamped next to an item to indicate a flex-qualified purchase.
Gumm said his bill spells out the tax-exempt items that he describes as “food bought for the home,” like raw meat, canned goods and bottled beverages.
But David Blatt, director of the Oklahoma Policy Institute, an organization devoted to government fiscal research, has a problem with the trigger clause. While he supports eliminating the grocery tax, he believes the method has to be carefully chosen.
“I appreciate Sen. Gumm’s work to say, ‘We can’t do this now, so let’s do it three years from now,'” Blatt said, “but at the same time, we shouldn’t be making binding budget decisions that are going to kick in three years from now. We don’t know what the state’s fiscal situation will look like.”
The bill had one other incentive to gain support of the cities: a clause that would mandate the state pay lost revenue back to cities because of the sales-tax elimination.
“It would be no less accurate,” Gumm said. “If the cities and counties have a disagreement with the reimbursement, go to your local grocers and have them write the numbers and present it.”
Stager and her supporters have been using the term “black box” to describe Gumm’s scenario of reimbursement, meaning whether or not cities are fully refunded for lost revenue is a mystery. She said the Oklahoma Tax Commission has old and antiquated computers and, combined with personnel cutbacks due to budget shortfalls, getting an accurate report back to cities is nearly impossible.
Get a fix on thatSince initial attempts to remove the food tax, a numbers game has ensued. Gumm estimates the state could lose more than $400 million annually if the exemption went into law, but he said almost half of that figure would be money the state would pay back to cities for lost revenue.
The tax commission provides a vast amount of information online about tax-revenue collections. But it is difficult to get an accurate read of how much revenue comes in via grocery sales. Reports are categorized by the type of merchant, not the product being sold.
The closest number to grocery sales is in the “Food Stores” category, which has a subcategory for grocery stores. Last month, Oklahoma City collected $35,531 in taxable food sales from grocery stores. If the MAPS 3 tax voters approved back in December had been on the books for March, it would have collected about $9,812 from those sales. The 1-cent tax went into effect April 1.
Extrapolate that figure over the length of the MAPS tax, 93 months, and the tax might fall short by $912,516, unless the tax commission gets the reimbursement numbers on target.
It may not seem like a lot, but that is only for stores that fall directly into the grocery store category. With Walmart in the department store column, according to the OTC, and a store like Braum’s, which is designated an eating establishment by the tax commission ” although grocery food is sold there ” the figures could go way up.
Last month, the state reported Oklahoma City collected only $967 in sales tax from general merchandise stores.
“We don’t have any way to check to see if the merchants are reporting the figures correctly to the tax commission,” Johnson said.
To prove his point, Gumm pointed to the back-to-school sales tax holiday held in August, which exempted clothing and shoes from state and local taxes.
“Our experience with the back-to-school sales-tax holiday is pretty good evidence that additional economic stimulus is going to lead to increased tax collections,” he said. “Revenues actually increased during the month of the back-to-school sales-tax holiday. Plus, they (the cities) were reimbursed for what they lost, so that got a double-bump. You never hear them say, ‘Thanks.’ They can’t admit they were wrong.”
Johnson argues it’s difficult to determine how much cities lost from the sales-tax holiday.
Tax commission spokeswoman Paula Ross said the agency uses a formula set out by law to determine what each city gets in reimbursement from the holiday.
“In order for OTC to have actual data, the vendors would have to file a separate sales-tax report for exempt sales during the holiday,” Ross said. “The law does not allow for this, as to not burden the vendors.”
According to statistics from the state treasurer’s office, sales-tax collections were way up the first year of the tax holiday in 2008. Collections increased 17 percent from August of 2007. But Oklahoma’s economy was strong in 2008, with nearly every month seeing higher-than-expected revenues. In 2009, August collections were way down as the recession gripped the Sooner State, with continuing months of decline.
“I would say there are no cities that would say they have been kept whole on those issues,” Stager said.
Feast of burdenFor all of the numbers, all of the arguments and all of the bills, it comes down to what is best for families. Gumm believes households will have more buying power, and cities will not suffer without a grocery tax. Stager and Johnson counter the risk for adequate police and fire protection is too great.
But for those who work with low-income families, the answer is not that simple.
“We do get a lot of people who have to make a decision on whether to pay their rent and utilities or buy food,” said Dana Chism, executive director of Upward Transitions, an Oklahoma City nonprofit funded through the United Way of Central Oklahoma. “In most instances, they are going to pay to keep the roof over their head. It’s easier to go and find someone to give you food than someone to pay your rent.”
For some of Upward Transitions’ clients, the decision is already made for them.
“Many people who are renters, their leases require they have to have utilities on or they can be evicted,” Chism said. “Families receiving assistance through DHS are also required to keep utilities on or you could lose the custody of your kids. But many of the people in those situations get food stamps anyway.”
Knowing how much money a family could save is also difficult to pin down. Some estimates range from $225 to $468 per year for a family of four.
Gumm said he doesn’t need analysts, lobbyists, agency directors or data to help him decide where to fall on this issue. He hears it every day back in his district. For him, getting rid of the home-food sales tax isn’t just about helping stretch dollars. He sees it as leveling the field.
“Sales taxes create an unfair tax structure,” Gumm said. “It creates a higher tax rate for those least able to afford it. We all have so many things we must buy. When you are talking about the basic necessities of life, like food, they are horribly unfair.”
This may be the one area of the debate all sides agree on: a better, more fair tax structure needs to be established.
“If the time does come where we have a serious conversation about how to redesign the tax system that is better suited for today’s economy, that can provide an adequate stream of funding to do the things we need to do, then absolutely doing away with the sales tax on groceries should be among the first things we do,” Blatt said. “I strongly agree the grocery tax is a regressive tax, and any equitable tax system would exempt the sale of groceries. But we also know we underinvest in public services.”
Blatt believes a current solution would be to increase the sales-tax relief credit for families earning less than $50,000 a year.
Stager emphasizes that sales-tax revenue is needed, because Oklahoma is one of the states where cities cannot use property taxes for funding. She is concerned that if the grocery tax were eliminated, economic tectonic plates will butt heads.
“With all the services cities and towns provide, something would have to give,” she said. “They are either going to have to decrease services or increase revenue somewhere else. It would likely be in utilities.”
While Gumm argues with city advocates over the ease of calculating food sales-tax figures, Blatt points out one part of the equation that is difficult to price.
“What is the value of police and fire protection? What is the value of having 20 students in a class rather than 25? We can’t quantify that,” he said. “Who benefits from the military? Well, arguably, we all do.” “Scott Cooper
photo Linda Mitchell checks out at Buy for Less, 3123 N. Portland, with Birdie Casey, Stephanie Cortez and David Fountain. photo/Shannon Cornman