Why a Trailer Bill Calling for No Taxes on Groceries?

Scott Lay
Publisher of The Nooner

I wrote last week about the proposal to prohibit the marketing, including menu display, of children’s meals that include beverages other than water, sparkling water, flavored water, or milk. I noted that the large beverage companies and their trade association, the American Beverage Association were neutral on the bill.

Now, we have an interesting budget “trailer bill” (SB 872) that has popped up (pardon the pun). It would prohibit the local jurisdiction of sales tax on groceries, except for tobacco, alcohol and pot. So, what are they going for here?

I’m guessing it’s to stop the “soda taxes” imposed/proposed in many cities, as I can’t recall any other products for which a local supplementary sales tax have been proposed.

The Revenue and Taxation Code provides the exemptions to the uniform sales tax:

6359. Food products. (a) There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption in this state of, food products for human consumption.

(b) For the purposes of this section, “food products” include all of the following:

(1) Cereals and cereal products, oleomargarine, meat and meat products, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices and salt, sugar and sugar products, candy, gum, confectionery, coffee and coffee substitutes, tea, and cocoa and cocoa products.

(2) Milk and milk products, milkshakes, malted milks, and any other similar type beverages which are composed at least in part of milk or a milk product and that require the use of milk or a milk product in their preparation.

(3) All fruit juices, vegetable juices, and other beverages, whether liquid or frozen, including bottled water, but excluding spirituous, malt, or vinous liquors or carbonated beverages.

Of course, this is about food for off-site consumption. This is why the “for here or to go” question is beyond just how it is packaged. Your froyo is going in the same container regardless, but once you walk out that door, it changes from exempt to covered by the sales tax. Sitting at a table on the sidewalk is on-site, while sitting on the park bench immediately across the street is off-site. Literally, it comes down to who paid for the chair your butt is sitting in. §6359(d)(2)

Carbonated beverages are subject to the uniform state and local sales tax, whether on-site or off-site. Then, local governments can add a supplementary sales sales tax from upon approval of the local voters (either majority or two-thirds, depending on how the proceeds are distributed), to items currently not included in the general grocery sales exemption, and the only thing I can think of is carbonated beverages. This bill would end that ability of local governments.

That’s really the only example that I see covered by this bill. Yes, this bill is ironic that that the bill to prohibit soda and juices from children’s meals is flying through with Democratic support.

But, this is part of a deal to get proponents of an initiative that would broaden the requirement of a two-thirds vote of local voters for certain taxes and fees. That initiative is in the signature counting stage, but clearly has submitted sufficient signatures to qualify.

This Thursday, June 28 is the deadline to pull initiatives that are still being tallied by county elections offices. As we saw with the privacy deal last week, folks on both sides would prefer not to have a costly ballot showdown.

Cities that have adopted these types of sales taxes target “sugar-sweetened beverages, “or SSBs.” These include San Francisco, Oakland, Albany, which adopted a supplemental SSB sales tax in 2016. The supplemental tax is 1 cent/oz, or 12 cents per can, of $1.44 for a twelve pack. For a Big Gulp, it’s 30-, 40-, or 50-cents, depending on the three sizes. (I really don’t know how that works, because the customer adds ice.)

The proposed initiative is only retroactive to January 1, so the above-referenced ones are not affected. SB 872 provides a similar retroactivity, and would allow any soda tax imposed before January 1, 2018 to continue. SB 872’s new limitations on the supplementary local sales taxes would be through December 31, 2030.

While the beverage industry is the leading proponent of the initiative, convenience stores would like to see an end to this local patchwork of sales taxes on one product. We all know that Californians love to stock up on stuff in Oregon, which doesn’t have a sales tax.

You can thus imagine the interest of local convenience store owners when someone can walk across the street and save $1.44 on a 12-pack of Coke/Pepsi/Dr. Pepper (I’m trying to play fair). Voters in Albany adopted a SSB supplemental sales tax, while Richmond’s voters have defeated one in the adjacent city. This “crossing the street to save a buck” is particularly true in the Bay Area, where you have small compact cities and people walk several blocks, often crossing cities, on their way to public transit.

[h/t Chris Micheli for reading gut-and-amends over the weekend]

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