DENVER — A GOP-sponsored bill that would expand the definition of food items exempt from Colorado sales tax has passed at least one round of committee scrutiny in a year that otherwise has seen Republican ideas killed one right after another. This despite estimates that the bill would lower General Fund revenue by more than $220 million in just the first six months if enacted.
Passage, however, is still unlikely as some Democrats worry about where they will find the money to replace spending on other projects.
House Bill 22-1062, “Expand Sales and Use Tax Exemption for Food,” made it through testimony and discussion in the House Finance Committee on March 7. Some committee members needed more time to think on it, and it will come back for the vote with at least one amendment, said the bill’s sponsor, Republican House Minority Leader Hugh McKean.
The bill is expected to lower general fund revenue by nearly $500 million and more in subsequent years, with the fiscal note saying the revenue loss will reduce Taxpayer’s Bill of Rights (TABOR) refunds rather than eating into revenues available for lawmakers to spend.
Currently, items to be prepared at home — such as grocery store food like flour, butter, etc. — are already exempt from state sales tax. Changes to the bill include: “food that is not for domestic home consumption and is instead prepared for on-site consumption at a restaurant, grocery store, or other establishment or to be carried out and consumed without additional cooking or preparation.”
Things such as alcohol, candy, and other beverages would not be exempted from sales taxes.
Immoral to tax food
“It’s immoral,” McKean said of the idea of taxing food, adding it impacts low-income residents the most, who have shifted their behavior during the pandemic to purchase more to-go meals from local restaurants rather than prepare meals at home.
At least one Democrat on the committee, Cathy Kipp, D-Fort Collins, said those dining out are doing so by choice and should not be rewarded with a tax cut, adding she is more worried about making housing affordable to people who she believes McKean’s bill isn’t targeted at.
“I don’t go out to eat that often because I can’t afford to go out to eat that often,” Kipp said during the hearing. “I go out when it’s a special thing, and I expect to pay taxes on it. It’s mind boggling to me that we are going to spend a half-billion dollars in your bill to people who can afford to go out to eat.”
McKean said Kipp’s assumption that the state would be spending money was wrong.
“We are not spending a half-billion dollars,” McKean told Kipp during the hearing. “We are saving the people of Colorado a half-billion dollars on money they should not have to spend on food. It’s that simple.”
McKean told Complete Colorado that the state can find the money in other places to continue to fund affordable housing.
“It doesn’t have to be taxing families on food,” he said.
Exempting special districts
Other committee members said they worried that the bill would impact special taxing authorities such as the Regional Transportation District (RTD), which creates its budget and has long-term debt commitments based on sales taxes on food. This prompted an amendment that the committee did vote on and pass unanimously during the hearing, exempting those special districts and allowing them to continue collecting the tax.
Another amendment McKean told Complete Colorado will likely be presented at the next hearing would be a cap on the dollar value that would be tax exempt, so that large corporate parties would still be required to pay the tax.
“Consumer behavior shifted in a remarkable dramatic way,” McKean said. “We started seeing food for takeout become staples in the family home. Tax policy should follow that.”
McKean stopped short of agreeing to identify which businesses would be impacted when questioned if it was right to allow bar food and other specialty areas to also be exempt from collecting the tax.
“Do I care if they eat it in a bar? Nope,” McKean told the committee. “Do I care if it’s at a resort? Nope. What I care about is we have a chance to set a marker that says food should not be taxed.”
Only one person testified on the bill. Nick Hoover, manager of government affairs for the Colorado Restaurant Association urged a yes vote, telling the committee that 2019 was the first year in America where more money was spent in restaurants than grocery stores.
“The change began before the pandemic,” Hoover said. “When consumers have more money available as disposable income, they have more money to spend on things like restaurants and local shops around them. More spending by consumers means more economic activity for the state.”
The bill has yet to be assigned a new date for the vote.
