City officials are watching with trepidation to see what becomes of a bill removing the sales tax from food that was approved by the House Revenue andTaxation Committee on Monday.
The bill, which would cost the state about $120 million in revenue, will now come before the full House for consideration.Republican House leaders say they allowed the Democratic bill to pass out of committee only to force House Democrats to choose between it and another Democratic bill that removes the federal deduction on state income tax returns and re-brackets the state income tax. The revenue raised by that bill has already been earmarked by the Democrats and thus could not be used to offset the loss in revenue from the food tax bill.
Mayor Joe Jenkins told council members Tuesday he doubts the bill will be passed by the Legislature but said it is likely a petition movement to list the issue as a ballot question will succeed. And that has council members worried.
Jenkins said Provo would be most affected of any city in Utah County by the removal of the sales tax on food because of the number of grocery stores in the city.
Keith Haslem, budget officer, estimates these stores have more than $100 million in sales per year; approximately $75 million of that is for food items. If the sales tax on food was eliminated, Provo would lose $750,000. That is about 4.4 percent of the city's total general fund revenue.
"It may not sound like much but in reality it is quite a bit," Haslem said.
Options being considered for compensating for the lost revenue include increasing the sales tax on non-food items and raising property tax rates. Provo's property tax would have to be increased 21 percent to make up for the lost sales tax revenue, Haslem said. That amounts to $33.75 per year on a $75,000 home.