Food prices are high. To help, states are cutting the grocery tax.
People shop at a grocery store on Aug. 14, 2024, in New York City. Spencer Platt via Getty Images
Connecting state and local government leaders
The number of states that still tax groceries is shrinking. Voters in two states will decide in November whether to join a movement away from the sales tax.
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The cost of groceries has been a hot topic on the presidential campaign trail. Late last week, both candidates made lower food prices a central part of their economic pitch. Former President Donald Trump spoke about tackling inflation last Thursday in front of cereal boxes, bacon, fruit and milk, during a press conference at his Bedminster, New Jersey, country club. A day later, Vice President Kamala Harris laid out a plan to bring down grocery prices and ban “price gouging.”
The issue isn’t just top of mind for the Republican and Democratic candidates. States, too, have been wrestling with the issue. While inflation overall is cooling, slipping under 3% for the first time since 2021, food prices are still far higher than they were pre-pandemic. And grocery shopping is a major expense for all Americans: Food ranks as the third-largest household expenditure, following housing and transportation, according to the Bureau of Labor Statistics.
In response to these high prices at the supermarket, state legislatures this session took aim at the grocery sales tax.
Earlier this month, Gov. JB Pritzker signed legislation eliminating Illinois' 1% tax on groceries starting in 2026, saying the tax is regressive and hurts low-income Illinoisans.
"Even with inflation cooling off, every dollar counts, so I'm proud we're doing what we can to make trips to the grocery store a little easier," Pritzker said in a statement. "It's one more important part of lifting the burden on Illinois families."
Next week, Oklahoma’s 4.5% statewide grocery tax will come off the books. Gov. Kevin Stitt signed a bill in March to eliminate the sales tax. According to state lawmakers, each family could save as much as $648 a year under its elimination.
Stitt said the measure is needed to combat higher inflation, which has led to climbing food prices and has strained the finances of many low-income households. Rising food prices have pushed many of the states that levy the regressive tax to consider tossing it out.
Most states have already done away with a tax on groceries—at least at the state level. With the legislation in Oklahoma and Illinois, now only 10 states impose a grocery tax. That number could soon be down to seven as Idaho is considering eliminating its 6% grocery tax in the 2025 legislative session, and voters in Utah and South Dakota will decide in November whether to get rid of their 3% and 4.2%, respectively, grocery taxes.
In recent years, Virginia eliminated its state grocery sales tax, and Kansas OK’d a phase-out of the tax that will be complete next year. Last year, Alabama enacted a law to gradually reduce the grocery sales tax rate over the next two years. Similarly, Arkansas and Tennessee have also reduced their grocery sales taxes. A bill in the Tennessee Legislature to completely eliminate it stalled in this year’s session.
Cutting or repealing the grocery tax is generally seen as helping families with low incomes. But Aidan Davis, state policy director at the Institute on Taxation and Economic Policy, told Route Fifty earlier this year that a more effective and targeted way to do that may be through refundable tax credits. In 2022, Utah considered a refundable grocery tax credit, targeted to low- and moderate-income families. Under that plan, a family of four with an annual income up to $60,000 would have received a $240 annual grocery tax credit.
Eliminating the grocery sales tax benefits high-income earners the most, said Davis. “People who shop at Whole Foods are going to see the biggest benefit,” she explained. “If you really want to help low-income families, refundable tax credits is another way to get more money into their pockets.”
Jared Walczak, vice president for state projects at the Tax Foundation, made a similar argument in a report about the regressivity of the grocery tax. He suggested a more comprehensive approach would be to broaden sales taxes to include groceries and consumer services—something high earners use more—and pairing that with a grocery tax credit and income tax reductions.
Davis added that in many states a key conversation is not happening in the rush to eliminate the grocery tax. “Oklahoma will see $400 million annually in lost revenue,” she said. “There is a need to have a conversation about how you are going to offset that loss. That conversation is very few and far between. States aren’t having it, which is very concerning.”
NEXT STORY: Ballot questions tackle high property taxes that come with rising home values