Lamont: Food tax to be scaled back

Gov. Ned Lamont announced Tuesday he expects the new sales tax surcharge on prepared foods will be scaled back — and applied to a narrower range of items — before it takes effect on Oct. 1.

The Democratic governor, who made the announcement following the State Bond Commission meeting, echoed concerns raised over the past week by legislators from both parties.

But the governor’s budget director, Office of Policy and Management Secretary Melissa McCaw, said legislators also could have helped back in June when they enacted the tax hike by drafting more specific language.

“I think that DRS too broadly interpreted what was the intent of the legislature,” Lamont said, referring to a Department of Revenue Services policy statement crafted in late August to help retailers prepare for the tax hike.

The governor said his budget office already has begun working with revenue services officials to scale back the range of items that would be subject to the surcharge. “We know what was intended,” he said.

House and Senate Republicans first raised the issue last week when they disclosed the DRS policy statement offering retailers guidance on how to apply the surcharge.

The tax hike was described — when legislators adopted a new state budget in early June — as a 1 percent surcharge on restaurant food or on “prepared meals.” That means someone who purchased a grinder and small soda combination, even at a supermarket, would pay 7.35 percent sales tax, rather than the base rate of 6.35 percent.

But when DRS released the policy statement this month, it covered a much wider range of prepared foods.

The extra penny will come on each dollar spent on a wide array of foods, many of which might not be thought of as a “meal,” critics said.

These items include: popsicles and other frozen treats, doughnuts and bagels, pizza slices, hot dogs, smoothies, power bars, a hot bag of popcorn, and even pre-packaged bags of lettuce and spinach.

The surcharge also applies to beer, fruit juices, milkshakes, hot chocolate, wine, and distilled alcohol like brandy or rum. It even applies to coffee and tea if purchased prepared to drink, rather than as coffee grounds or in tea bags.

Initially, both Lamont and Democratic leaders in the House and Senate responded simply by saying Republicans were hardly in a position to criticize.

Democrats had made many difficult choices, they said, while successfully closing a projected $3 billion-plus deficit in the new state budget without increasing income tax rates.

Republicans, on the other hand, opted not to show their cards last spring, offering no plan to close the shortfall — after a decade of offering alternative budgets.

But things intensified last Friday when the legislature’s nonpartisan Office of Fiscal Analysis revised its estimate on how much revenue the surcharge would generate.

Based upon the policy statement, OFA projected the tax would generate $158 million over this fiscal year and next — nearly 40 percent more than lawmakers anticipated. By 2020-21, consumers would pay more than $90 million per year.

Majority Democrats in the Senate announced midday Monday that they thought DRS had gone too far. The House Democratic Caucus followed suit late Monday afternoon.

“The unilateral decision by the agency to expand the sales tax to additional food items is not consistent with the intent of the budget,” House Democrats wrote in their statement.

Lamont did not say Tuesday which items would be taxable. But he noted that, under current law, prepared foods — unlike groceries — are subject to the regular 6.35 percent sales tax, even if sold at a supermarket. And the goal of the legislation was to apply a surcharge to all of these items already subject to the sales tax.