Grocery Tax Bills Move Forward in Different Forms

February 15, 2022

On Thursday evening, February 10, the Senate Finance and Appropriations Committee advanced a new substitute for SB 451 (Boysko)., which passed the Senate today by a vote of 37-3. The key provisions of the bill as reported by the Committee are as follows:

  • It would eliminate the 1.5 percent state portion of the sales and use tax on groceries (food for human consumption and essential personal hygiene products), effective January 1, 2023.
  • It would leave the local option 1 percent imposed on groceries intact.
  • It would provide for replacement revenue for the 1 percent that is currently distributed to counties and cities based on school-age population via statutory language that requires a distribution to cities and counties in an amount equal to the revenue that would have been distributed under the current school-age population distribution.
  • It would not replace the 0.5 percent that is dedicated to the Commonwealth Transportation Fund.

On Friday evening, February 11, the House Appropriations Committee reported its version of HB 90 (McNamara).  The revised version passed the House today by a vote of 80-20.  As reported by the Committee, the key provisions of the bill are as follows:

  • It would eliminate both the 1.5 percent state portion and the 1 percent local option portion of the sales and use tax on groceries (food for human consumption and essential personal hygiene products), effective July 1, 2022.
  • As a replacement for the revenue loss from the 1 percent local option, it would provide for a supplemental school payment that would be derived from 0.182 percent of the state’s portion of the sales and use tax.
    • 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.
    • 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.
    • 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 the procedures under 58.1-605 (current Code language sets out a process for the correction of errors or otherwise necessary adjustments, “whether attributable to refunds to taxpayers, or to some other fact”).
  • It does not provide in statute for replacement of the 1 percent school-age population distribution. However, it was indicated at the February 11 House Appropriations meeting that the school-age population revenue loss would be replaced in the budget, similar to the introduced budget bill.
  • It would not replace the 0.5 percent that is dedicated to the Commonwealth Transportation Fund.

VACo is appreciative that both Committees have expressed an intention to keep localities whole for revenue losses associated with the 1 percent local option and the 1 percent school-age population distribution.  VACo continues to favor revenue replacement via a direct distribution to localities in statute, with a mechanism that allows for future revenue growth.  Addressing the lost revenue solely through an appropriation in the budget each year is not an adequate replacement for these dollars, as it will be vulnerable to caps or reductions in future years.  VACo also supports an approach that retains local discretion over revenue replacement for the 1 percent local option, rather than an approach that would characterize the replacement revenues as payments for K-12 needs.

VACo Contact:  Katie Boyle

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