Several states are implementing changes to their grocery tax policies in 2025, reflecting a broader trend toward reducing or eliminating these taxes.
As the cost of living continues to rise, the taxation of groceries remains a significant issue affecting households across the United States. While many states exempt groceries from sales tax to alleviate financial burdens, others maintain such taxes, impacting consumers' daily expenses.
Several states are implementing changes to their grocery tax policies in 2025, reflecting a broader trend toward reducing or eliminating these taxes.
Kansas is set to eliminate its state sales tax on groceries by January 1, 2025.
This change is the culmination of a gradual reduction that began in 2023, lowering the tax from 6.5% to 4%, then to 2% in 2024, and finally to 0% in 2025.
Governor Laura Kelly has emphasized that this move will significantly reduce the cost of food for residents, with an average family of four expected to save over $500 annually.
Similarly, Illinois plans to eliminate its 1% statewide grocery tax as part of the fiscal year 2025 budget, effective January 1, 2025.
This decision aims to provide financial relief to approximately 12.5 million residents, with an average family of four projected to save around $130 per year.
However, it's important to note that certain items, such as prepared foods, alcoholic beverages, soft drinks, and candy, will continue to be taxed at the standard sales tax rate.
Oklahoma recently eliminated its 4.5% state sales tax on groceries, marking the largest single-year tax cut in the state's history. Local sales taxes may still apply.
Utah taxes groceries at a reduced rate of 1.75%. A 2023 proposal to remove the state sales tax on food and food ingredients beginning in 2025, pending voter approval, was removed from the ballot. The issue is not currently under consideration.
Current Grocery Tax Landscape
As of December, 13 states impose a sales tax on groceries, though the rates and structures vary. Nine of those states don't plan changes in 2025:
- Alabama: Groceries are taxed at the full state sales tax rate of 4%, with additional local taxes potentially increasing the total rate.
- Mississippi: Imposes the highest grocery tax in the nation at 7%, applying the full state sales tax rate to groceries.
- South Dakota: Applies a 4.2% tax on groceries.
- Virginia: Applies a reduced state sales tax rate of 1% on groceries, with an additional 1% local option tax, totaling 2%.
- Tennessee: Taxes groceries at a reduced rate of 4%.
- Missouri: Applies a reduced state sales tax rate of 1.225% on groceries, with additional local taxes potentially increasing the total rate.
- Arkansas: Taxes groceries at a reduced state sales tax rate of 0.125%, with local taxes potentially adding to this rate.
- Idaho: Applies the full state sales tax rate of 6% to groceries.
- Hawaii: Applies the general excise tax of 4% to all sales, including groceries.
Historical Trends and Context
Historically, the taxation of groceries has been a contentious issue. Many states initially included groceries in their sales tax base but have moved toward exemptions or reduced rates to lessen the regressive nature of sales taxes, which disproportionately affect lower-income households. The trend toward reducing or eliminating grocery taxes has gained momentum in recent years, with states like Kansas and Illinois making significant policy changes.
Internationally, the approach to taxing groceries varies. For example, the United Kingdom applies a zero rate of Value Added Tax to most food items, while countries like Denmark apply the standard VAT rate to groceries. These differences reflect varying policy choices balancing revenue generation with the desire to minimize the tax burden on essential goods.
Local Variations and Considerations
It's important to note that local sales taxes can significantly impact the total tax rate on groceries. In states that have eliminated or reduced state-level grocery taxes, local jurisdictions may still impose their own taxes. For instance, while Oklahoma has removed the state sales tax on groceries, local sales taxes may still apply, leading to variations in the total tax rate across different municipalities.
Implications for Consumers
The elimination or reduction of grocery taxes can provide meaningful financial relief to consumers, particularly in times of economic strain. However, the actual savings for households depend on various factors, including local tax rates, the range of taxable items, and overall consumption patterns.
As states like Kansas and Illinois implement significant changes in 2025, the landscape of grocery taxation in the United States continues to evolve, with potential implications for household economies and state revenue structures.
