House and Senate versions of legislation to eliminate or reduce the tax on food for human consumption and personal hygiene products are moving towards conference committees. The Senate bill, SB 451 (Boysko), was heard in the House Finance Committee this week, and conformed to the House bill (HB 90 (McNamara)), with one important amendment.
As reported by the House Finance Committee on February 23, SB 451 now includes the following provisions:
- Eliminates the tax on groceries (food for human consumption and essential personal hygiene products) entirely (both the 1.5 percent state portion and the 1 percent local option), effective July 1, 2022.
- As a replacement for the revenue loss from the 1 percent local option, it would provide for a distribution to cities and counties that would be derived from 0.182 percent of the unrestricted General Fund portion of state sales and use tax. This figure was derived from the Department of Taxation’s estimate of the amount of funding needed to cover local losses associated with the removal of sales taxes on groceries. The Department’s estimates of losses for each locality (based on an analysis of sales by each dealer) may be found at this link. The bill labels this payment a “supplemental school payment,” terminology that continues to concern VACo. The local option sales tax revenue, although much of it may be used for school needs, is local general fund revenue. Labeling these funds as a school payment is likely to create conflict in the future between governing bodies and school divisions.
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- Beginning on July 1, 2022, and before July 1, 2024, this payment will be based on each city and county’s estimated average share of monthly distributions of the local option sales tax that is attributable to grocery sales between February 2020 and December 2021.
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- Beginning July 1, 2024, this payment would be based on each city and county’s pro rata share of local option sales and use tax collections.
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- Beginning October 1, 2025, the Department of Taxation is directed to make an annual review of the distributions beginning July 1, 2024, and make any necessary adjustments in accordance with its authority to correct errors in sales tax distributions.
- As the House version was passed by the House on February 15, the bill did not replace the school-age population distribution in statute, instead restoring local losses through the Appropriation Act. VACo has advocated for a permanent replacement of revenue rather than relying on a pledge to keep localities whole in future budgets. In a helpful move, the bill was amended on February 23 to embed revenue replacement for the school-age population distribution in the Code by increasing the 1 percent school age population distribution to 1.182 percent.
SB 451, as amended, is now on the House floor. After it passes the House in its amended form, it will return to the Senate. HB 90 is before the Senate Finance and Appropriations Committee and is expected to be heard next week; the bill will likely be conformed to the Senate’s version, which would move the bills further towards a conference committee to resolve differences between the two approaches.
VACo Contact: Katie Boyle