·         Over $140 million in gross receipts taxes are being removed from the sale of certain foods and medical services

·         Not all foods are tax free (foods must qualify under the federal food stamp program)

·         Not every retailer qualifies to sell food tax free

·         Hot foods from grocery stores, fast foods and take-out from restaurants remain taxable

·         Medical deduction is for transactions between practitioners and HMOs

·         Direct payments to practitioners from patients are still subject to tax

·         The tax changes do no take effect until January 1, 2005

Here’s what the Food Tax changes do:

The bill removes the gross receipts tax on qualifying food sales and certain medical services in the form of a deduction from gross receipts while (1) adjusting local gross receipts tax distributions to offset local revenue loss and (2) repealing a .5% credit against the state tax rate for taxpayers who report to locations within city boundaries.

The deduction for food is for receipts from sales of food at retail food stores as defined under the federal food stamp program. “Food” therefore includes most staple grocery food items and cold prepared foods packaged for home consumption.

Specifically excluded items are:

·         Alcoholic beverages

·         Tobacco

·         Prepared hot foods for immediate consumption.

To qualify as a retail store a store must meet one of two standards set by the federal government. It either must stock and offer a variety of foods on a continuous basis in each of the four defined staple food categories (two of which must be perishable foods), or be a specialty food store that attributes 50% or more of its gross retail sales to staple foods.

Please see FYI-201, Gross Receipts Tax and Certain Foods under the “business” link for more details.