January 04, 2008

Rebating Sales Tax on Groceries: Colorado Local Governments Give it a Try

As lawmakers nationwide debate the morality of applying sales taxes to purchases of groceries and other necessities, it's worth remembering that for governments seeking to provide low-income sales tax relief without blowing a hole in their tax base, there is another way.

The Denver Post has an interesting article from February of 2007 (sorry, a bit behind on my Denver Posts) evaluating the experience of local Colorado governments in providing tax rebates for grocery taxes.

Colorado's state sales tax (which is 2.9 percent) exempts groceries, but locals are allowed to levy a grocery tax. This matters because statewide, Colorado local sales taxes actually bring in more than the state tax.

The article provides details on a couple of the strategies pursued by different Colorado towns and cities to rebate low-income sales taxes on groceries:
Boulder, which collects about $10 million annually in grocery tax, gives a flat
amount: $66 per year for the elderly or disabled and $199 for a family, regardless of size. An individual living alone must make less than $30,450 and be over 61 or disabled. A family of four must make less than $43,500 to qualify.
The rebate in Fort Collins is $40 per year for each person, and single people living alone - it doesn't matter if they are disabled or elderly - must earn less than $24,200 to qualify.
It's the same to qualify in Loveland, but the rebate is $70 per person for up to four people in a home, and food stamps are factored in the rebate amount. Likewise in Greeley, though the base rebate is $45 per person.
As with all such rebates, the main strike against this approach is that unless you apply for the rebate, you obviously don't get it. But the approach taken by these Colorado locals-- tax it, then provide targeted rebates--is worth thinking about for anyone concerned with the unfairness of taxing food.


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