By HEATHER HARTSELL AND
JOHN HOFHEIMER
Leader staff writers
The largest tax cut in state history will take effect July 1, reducing sales tax on food and food ingredients from 6 percent to 3 percent. It brings some relief to shoppers, but area grocers will have to update their systems to include the tax reduction.
For most, implementing this new tax reduction will be a rather burdensome task.
“We’ll have to go through the list they (the Department of Finance and Administration) give us of what is affected with the tax cut – and they don’t make the list easy – and then go into our system and change the tax rate on those items,” Pat Robertson, administrative assistant for Knight’s Super Foods, said.
A LOT OF QUESTIONS
“There are a lot of questions we have on it. We’ll have to determine what is considered prepared and what is not from our deli and bakery, as well as what they consider a dietary supplement; those are the two biggest problem areas we see,” Robertson said.
“It’s not easy on us as retailers to know what the government says on it,” Robertson said of which items should be included in trying to get a head start on tax rate changes before it is implemented.
FOOD STAMP ITEMS
While there is sure to be some confusion and a period of adjustment, it won’t be as bad as some merchants fear.
The exempt items correspond “99.9 percent” with the items eligible for purchase with food stamps, according to Tim Leathers, deputy director, commissioner of revenues for the state Department of Finance and Administration. He said it shouldn’t be difficult for clerks at grocery stores and grocery stations to recognize the items exempted.
Most groceries should be easily able to reprogram their computerized cash registers to automatically apply the tax correctly, he said. Basically, it is foods, but not prepared foods, for human consumption. No pet food or sandwiches or beer are on the list.
“It ties into the definition of what’s allowed for food stamps,” Leathers said.
Only food and food ingredients, defined as substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value, will be taxed at the reduced state sales and use tax rate of 3 percent.
Prepared food, alcoholic beverages, dietary supplements, and tobacco will remain at the full state sales and use tax rate of 6 percent. Dietary supplements are required to be labeled as a dietary supplement, identifiable by the “supplemental facts” box found on the label.
PREPARED FOOD
Prepared food is considered food sold in a heated state or heated by the seller (retailer) that is ready for immediate consumption at the time of sale; consists of two or more food ingredients mixed or combined by the seller for sale as a single item; or food sold with an eating utensil provided by the seller.
Examples of prepared food include salads, birthday cakes, and meat and cheese trays and are taxable at the full state sales and use tax rate if the seller makes the item.
“This is the largest tax cut in state history and its implementation is right around the corner,” Gov. Mike Beebe said. “This is a step forward for our state that’s been a long time coming,” he added. The grocery tax cut was a primary piece of Beebe’s agenda, which passed the legislature in its recent session.
Kim Eskew, executive vice-president of Harps Food Stores, Inc., which includes Price Cutter Food Warehouse, said it might seem simple on the surface, but it will actually be “a fairly cumbersome task to implement at store level.”
“Our company does support tax reduction, but like a lot of things in life, talking about it is far easier than actually doing it,” Eskew said.
FORUMS SET
To prepare retailers for the change, the DFA is hosting a series of forums across the state to educate retailers about the implementation of the tax cut.
The seminars, set to take place over the month of June, will be held in all 75 counties for local businesses that may be impacted to learn about the new processes for the reduction in sales tax on food and food ingredients.
Although they should be helpful to retailers, some forums are scheduled so late in June that it doesn’t give retailers much time to then change their system before the tax rate goes into effect July 1.
“There’s not a lot of time to work with what we learn (from the seminars) before its implemented,” Robertson said. “It goes into effect on a Sunday; we can’t do it while we’re open, so we’ll have to go in after we close Saturday night and change the taxes at our three stores or do it early Sunday morning before we open,” she said. Two seminars will be held in Lonoke County; the first will be at 6 p.m. June 4 in Carlisle at the Carlisle High School Cafeteria, and the second will be at 10 a.m. June 26 in Cabot at the Cabot High School Cafeteria.
For north Pulaski County, seminars will be held at 9 and 11 a.m. and at 2 p.m. on June 12 in Sherwood at the Sherwood Police and Court Building. White County will have their seminar at 10 a.m. June 19 in Searcy at Harding University’s Heritage Auditorium.
“We’re working to help Arkansas retailers prepare for the changes coming July 1,” Richard Weiss, DFA director, said. “We are trying to make it as smooth a transition as possible.”
POLLS WEIGH IN
State Sen. Bobby Glover, D-Carlisle, who was primary sponsor for tax cut for Gov. Mike Beebe said it cuts $135 million a year from revenues.
“It’s the larges decrease in taxes in the history of Arkansas,” Glover said, “and that doesn’t include another $65 million in reductions.”
Glover said Beebe hopes to cut out the other 3 percent grocery tax in the 2009 session of the general assembly if the economy remains stout. Leathers said DFA worked with associations of retail merchants, grocers and wholesale oil marketers involved in most convenience stores to minimize confusion.He said most other states don’t tax groceries and the list of taxable items is the same.
“We’re not inventing the wheel here,” Leathers said. “In my 4.5 years in the house, I voted for the largest tax increase (funding education in 2004) and tax decrease in the state’s history,” said state Rep. Will Bond, D-Jacksonville.
“I think it does show the willingness of the governor to take the lead on a fiscal issue and fulfill a campaign promise,” Bond said. He said a tax on food was “unfair, disproportionately affecting low and middle income people.”
