Some of the proposed changes to the Utah tax code put forward last week by the Utah Tax Reform and Equalization Task Force would likely only come to locals’ attention during tax season. They are tax breaks and refunds enumerated next to the existing list of tax credits, and qualifying individuals will get to enjoy them when they receive their annual tax refund.
Many of the changes to the tax code, however, will affect Utahns each time they swipe a card or hand over cash or a check. One such change is a proposed increase to the tax on groceries.
The proposal put forward by Utah legislators would increase the tax rate on groceries from 1.75% to the full sales tax rate of 4.85%. The change will not affect the tax rate in restaurants, but it will at grocery stores and similar retailers.
The rate increase in taxes on groceries would be offset, if the plan passes, by a grocery tax credit. This refundable tax credit would go toward families with incomes near or below the state’s median household income, most benefitting those with lower salaries.
Moab’s median income is less than the state average, meaning that more of Moab’s families will qualify for the grocery tax credit than elsewhere in the state. The tax credit is bigger for larger families to cover the cost of feeding more mouths, but the credit only extends to families with incomes below a certain amount.
Additionally, the tax credit would not apply at the grocery store, but rather, during tax season. Low- and middle-income families would pay the higher tax rate on groceries every time they check out from the store, just like other Utahns would. The difference is that, once a year, they would receive a tax credit from the state, and it would come in the form of a larger tax refund or smaller tax liability.
The exact impact that the grocery tax will have on food prices remains to be seen. Sellers, naturally, are wont to adjust their prices in response to changes in the tax rates and price fluctuations. However, assuming that the new tax gets added on top of the current prices can provide a rough idea of the costs that consumers will face in response to the tax increase.
The actual numbers
A typical Grand County household of three (two parents and one child, for example) earning $50,000, which is a few thousand dollars more than the median for the area, would qualify for the full, $300 grocery tax credit under the tax reform proposal. This compares to the approximately $140 increase in taxes they would pay for groceries throughout the year (assuming grocers keep their prices roughly the same), leaving the family with a $160 net gain on groceries.
That $300 tax credit would be the same for families of three earning less than the area’s median, and families of three earning up to $55,000 would qualify for a partial tax credit.
Families of four qualify for a larger tax credit of $400. Such a family with a household income up to $60,000 would qualify for the full tax credit. Similarly, a family of two earning $40,000 can receive a $200 tax credit at the end of the year, and an individual earning $30,000 can receive a $100 tax credit.
In the end, most families in Moab—because of its low wages compared to the rest of the state—would qualify for the grocery tax credit, if the proposal is passed. Because of this, they would also likely experience a net gain on their annual budgets, as long as they keep their spending habits the same on groceries. Medium-income individuals, on the other hand, would experience a net loss.
These calculations, however, do not account for strains on monthly budgets. Because the tax credit applies at the end of the tax year, families would experience a squeeze on their budgets during the year—in part because of higher prices at the gas pump and on bills for certain services—before receiving a higher tax credit at the end of the year. See related coverage for details.