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Foregone revenue from Georgia's grocery tax exemption to increase by 22% by 2027

  • By The Newnan Times-Herald
  • |
  • Dec. 28, 2022 - 4:30 PM

Foregone revenue from Georgia's grocery tax exemption to increase by 22% by 2027

The Newnan Times-Herald

By T.A. DeFeo | The Center Square

(The Center Square) — Foregone revenues from Georgia's grocery tax exemption are estimated to increase by about 22.3% between fiscal 2023 and 2027.

In fiscal 2023, the tax expenditure cost to the state is estimated at $838.4 million and is projected to increase to more than $1 billion in fiscal 2027, according to a new report, "Tax Incentive Evaluation: Georgia Sales Tax Exemption for Food for Off-Premises Consumption."

In fiscal 2022, the annual tax expenditure cost to the state for the grocery exemption was roughly $751 million, up from roughly $691 million for fiscal 2021.

If "the state received the forgone revenue associated with groceries and spent the money, it could be expected to generate approximately $1.5 billion in output annually," the authors wrote in the report.

"This estimate includes $691 million in annual direct government outlays, the FY 2021 estimated tax expenditure for the exemption, plus ... indirect and induced effects resulting from the initial, direct outlays," the report concluded. "If the state did not offer this sales tax exemption, it would have the $691 million to spend in other ways."

However, the report notes that the "net fiscal effects" are not the best way to analyze the tax credit's performance as the aim of the law was the "broad public benefit in the form of tax relief to households on spending for a necessity."

Georgia enacted its state sales tax exemption on food purchases for off-premises consumption in 1996. Under the provision, most grocery items are exempt from the state's 4% sales tax rate.

In addition, the report concluded that the benefits reduce "the regressivity of the sales tax because lower-income households spend a greater share of their income on groceries than higher-income households.

"The grocery tax exemption clearly helps households afford food as academic research shows that the tax savings are realized by consumers in lower after-tax prices for food and not shifted to retailers or producers," the report added.

The report was prepared by the Georgia State University Fiscal Research Center for the Georgia Department of Audits and Accounts in response to Senate Bill 6, which Georgia lawmakers passed in 2021.

Peter Bluestone, associate director of Georgia State University's Center for State and Local Finance; Robert Buschman, associate director of and a senior research associate with the school's Fiscal Research Center; and Nicholas Warner, a senior research associate at the Center for State and Local Finance and the FRC, authored the report.