With inflation on the rise and prices seeming to skyrocket everywhere, many people certainly feel a pinch in their budgets, especially at the grocery store. Food prices are expected to rise 2.5% to 3.5% in 2022, which is on top of similar increases in both 2020 and 2021.
Thirteen of the 45 states with a sales tax charge statewide taxes on groceries, on top of any local or municipal taxes collected. Among those 13, some states offer lower tax rates on food or a rebate for you to claim on your tax return, but others tax groceries based on the total sales tax rate.
Alabama is one of the three states that applies the whole state sales tax rate of 4% to food and groceries. If you live in Tuscaloosa or Cullman counties, you’ll also have to pay a 5% local tax, which means you’re paying 9% in sales tax on top of your grocery bill, one of the highest combined rates in the nation.
Mississippi has a relatively low cost of living, but groceries are still taxed at 7%. An upside to this high rate is that local taxes are not allowed on groceries in addition to the state tax. There is currently legislation in the Mississippi statehouse that would reduce the tax on groceries down to 3.5%.
South Dakota’s state sales tax is 4.5%, and grocery purchases are subject to that rate, plus any applicable local taxes.
South Dakota does not distinguish between groceries and candy or soda, unlike some other states, so all consumable items are taxed at the same rate. There is a limited rebate program for low-income seniors or people with disabilities to help offset some sales or property taxes, though to qualify, you must be 65 years or older or permanently disabled and make less than $12,889 as an individual or under $17,420 for a multi-person household.
Food, medications, and medical appliance sales in Illinois are only subject to a 1% tax rate, plus applicable local taxes.
The state also taxes candy, soda, and alcohol at the state tax rate of 6.25%, plus any municipal taxes. Illinois is one of 18 states that says treats prepared with flour aren’t candy, so they’re taxed as regular groceries. For example, a regular chocolate bar is subject to more than six times the tax charged on a chocolate bar containing cookie pieces.
Missouri charges a reduced sales tax rate of 1.225% on grocery items, down from the standard sales tax rate of 4.225%. This includes food for in-home consumption and also includes plants or seeds to grow your own produce. Local taxes may still apply, and depending on the county you live in, may add 2% to 6% to your overall grocery bill.
Food is charged a reduced sales tax rate of 2.5% in Virginia, though alcohol, tobacco, and some prepared foods are not included in this rate. As of 2020, personal hygiene products such as diapers, incontinence pads, feminine hygiene products, and even bed sheets and mattress protectors are also included in this reduced sales tax rate.
There is no soda or candy sales tax in Virginia, but an excise tax on wholesalers or distributors of soft drinks is levied based on gross sales, so those charges are likely passed along to consumers in the form of higher prices.
If purchasing groceries in Utah, you'll see a 3% tax added to your grocery receipt for general food sales. This is a combined rate, including 1.75% of state tax, 1% local option, and 0.25% county option.
Alcohol and tobacco are subject to the regular sales tax rate of 4.7%, plus any local tax. Prepared food, such as food sold in a deli or already heated, or any food sold with utensils, is exempt from the reduced rate and subject to the combined tax rate, which could be as high as 8.85%, depending on the county where you make the purchase.
Arkansas taxes groceries at a highly reduced rate of 0.125%, plus local taxes. Candy and soft drinks are taxed at a 6.5% sales tax rate, the same as non-food items such as toothpaste or ice. The tax code stipulates that anything called candy cannot include flour; otherwise, it's considered food and subject to the reduced tax rate.
As you think about how to manage your money, moving to Hawaii is probably not at the top of your cost-saving list. Although Hawaii doesn’t technically have a state sales tax, it charges businesses a 4% General Excise Tax. Companies then typically pass that cost on to customers, along with any applicable municipal taxes.
Hawaii offers a refundable food tax credit for low-income residents, but it starts to phase out for anyone filing as an individual and making $30,000 or more a year (or $50,000 a year for joint filers). People who use this credit must complete and submit a separate form with their tax return, which creates an added barrier.
Tennessee doesn’t charge income tax, but it does have a sales tax rate of 7%, plus any additional local or municipal tax. Groceries are charged a reduced sales tax rate of 4%, but prepared food, including bakery goods, hot soup, deli dishes, candy, and alcohol, are taxed at the 7% sales tax rate.
In 2021, the state offered three days of sales tax holidays where food, food ingredients, and prepared foods were not charged sales tax, though alcohol, candy, and dietary supplements were still taxable.
Oklahoma’s state sales tax is 4.5%, and you can expect to pay that on your groceries. There is a sales tax-relief credit for low-income residents, but it’s only $40 per person in households that make less than $50,000 for the elderly, the permanently disabled, or those who claim a dependent. For everyone who doesn’t fall into those categories, you have to make $20,000 or less per year to qualify. The amount of the rebate has not changed in the past three decades.
Idaho charges a state tax rate of 6% on groceries but does offer a tax credit that averages out to about $100 per person. The Idaho House of Representatives recently debated a bill to increase the tax credit to $120 per person in 2023, but it’s still being discussed in the state senate.
Buying groceries in Kansas means you’ll pay 6.5% state sales tax, plus local taxes, which is the second-highest rate in the country. Legislation is currently being debated about eliminating the sales tax on food, but it has not been passed yet.
Kansas offers a tax credit of $125 per person per year, and you must be at least 55 or older, have a permanent disability, or a dependent under 18 years old, and have made less than $25,800. It also has to be the last tax credit taken on your state income tax return, after any other applicable credits or deductions, so it may not benefit low-income families who may not owe much state income tax anyway.
Taxes on food and groceries are controversial because food costs tend to take up a more significant proportion of the monthly budget for lower-income families. Most people don’t shop for groceries based on the tax rate of a particular item, but not paying attention to the taxes at the bottom of your receipt can take a bigger bite out of an already strapped budget.
As tax season approaches, check out the best tax software, and don’t forget that small amounts of tax add up, especially on necessities like groceries. Pay attention to your receipts and investigate your area’s grocery and food taxes to know what to expect and plan accordingly.
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