Special Subcommittee Studying the Sales Tax on Food

October 20, 1998, Richmond

During its final meeting, the special subcommittee heard an explanation of how the circuit breaker provisions of the "car tax" law operate, received information concerning the historical growth of general fund revenues and the outlook for the 1998-2000 biennium, and reviewed draft legislation in which two percent of the 4.5 percent sales and use tax would be removed over a two-year period.

Car Tax Circuit Breakers

Concern was expressed during the subcommittee's September meeting about what effect reducing the sales tax on food might have on the implementation of the car tax reduction. In order to understand how the car tax plan is supposed to work, an explanation was given of the three circuit breakers in the plan, which are meant to ensure adequate revenues exist to pay for it. The subcommittee members agreed that while reducing the sales tax on food is a laudable goal, the complete and timely implementation of the car tax plan must not be hindered.

General Fund History and Short-term Outlook

General fund revenue growth has been fairly consistent during the last five years, with this year being no exception. Collections for the first three months of the 1999 fiscal year are ahead of the current official estimate, and it is expected that the estimate will be revised in December when the Governor presents his budget amendments to the money committees.

Draft Legislation

With regard to the draft legislation, the main focus was on the definition of "food for human consumption." After discussing the pros and cons of including a laundry list of such food items in the legislation, the subcommittee members agreed to reduce the tax on the same items that are currently exempt for food stamp purchases. The consensus was this would be easier for businesses to understand and administer.

There was some discussion about including circuit breaker/trigger language similar to that in the car tax plan. No such language was adopted, but it was agreed that some might be added during the legislative process of the 1999 Session. The subcommittee completed its work by directing staff to finalize the draft legislation and mail it to the House Finance Committee members as a recommendation from the special subcommittee. Whether the House Finance Committee will meet prior to the 1999 session was not decided.

The Honorable Jay W. DeBoer, Chairman
Legislative Services contact: Joan E. Putney