State sales tax rate changes proposed in several states

All sales and use tax rates are subject to change, and in some states, local rates fluctuate frequently. It’s less common for a state rate to change, yet statewide sales tax rate changes are now on the table in several states.

Mississippi

A bill introduced in Mississippi would allow individuals to claim more income tax exemptions and eliminate the income tax for single individuals earning up to $47,700 ($95,400 for married individuals, and $46,600 for head of family individuals). In exchange, it would increase the sales and use tax rate for tangible personal property substantially, from 7% to 9.5%.

Other sales tax rates would also climb under House Bill 1439, including but not limited to the rates for:

Farm implements sold to farmers (and parts and labor used to maintain or repair them)

Equipment used in logging, pulpwood operations, or tree farming (and parts and labor used to maintain or repair it)

Materials used in the repair, renovation, addition to, expansion, or improvement of building and related facilities used by dairy producers

However, the tax on retail sales of food for human consumption not purchased with food stamps would gradually be reduced. See below for details.

West Virginia

West Virginia is looking to halve the state income tax. To balance the books, it would expand the state sales tax base and increase the state sales and use tax rate from 6% to 7.5%.

At least, that’s what Governor Jim Justice said during his State of the State Address on February 10, 2021, but it’s possible he underestimated. During a February 24 virtual town hall meeting, at the invitation of the governor, West Virginia Department of Revenue Secretary Dave Hardy proposed taking the state consumer sales tax rate as high as 7.9% (see minute 27).

Hardy also talked of expanding the sales tax base, imposing a luxury tax of up to 3% on luxury items costing over $5,000, and increasing the tax on cigarettes (currently $1.30) and other tobacco products. Indiana is also looking to increase taxes on cigarettes and vaping products (see House Bill 1001 for details).

E-cigarettes and soft drinks could also see tax rate increases. Hardy noted that “West Virginia has had a tax on soft drinks at one penny since 1952 … per 16.9 fluid ounces per soft drink.” After almost 70 years, he said, isn’t it time to raise it? According to Gov. Justice, “an additional tax on cigarettes and soda” would “make us healthier and better.”

This isn’t the first time Justice has proposed increasing the sales tax rate, broadening its base, or raising the tax on sugary drinks, although past attempts were unsuccessful.

There’s been no talk of taxing food for home consumption, which was subject to the full tax rate prior to 2005. The tax on food was gradually reduced over a period of seven years and, and food became sales tax exempt in West Virginia in 2013.

Grocery foods are currently taxed at a reduced rate or completely exempt in most states. In fact, only three states tax food for home consumption at the full rate: Alabama, Mississippi, and South Dakota. Soon it could only be one.

Alabama

A measure under consideration in Alabama would eliminate the 4% state sales tax on food over time. Under House Bill 442, the state sales and use tax rate for food would drop in stages as follows:

• To 3% effective October 1, 2021
• To 2% effective October 1, 2022
• To 1% effective October 1, 2023
• Exempt from sales tax effective October 1, 2025

The bill wouldn’t eliminate local sales or use taxes on food.

It’s unclear whether HB 442 will find the support it needs to pass. Two measures seeking to phase out Alabama’s so-called grocery tax were introduced in 2020, but neither became law.

Mississippi

As noted above, Mississippi HB 1439 would increase the state sales and use tax rate for tangible personal property and many other items. Yet it would gradually reduce the tax on food as follows:

• 4.5% from July 1, 2021, through June 30, 2024
• 4% from July 1, 2024 through June 30, 2026
• 3.5% from July 1, 2026

Like the Alabama measure, Mississippi HB 1439 wouldn’t affect local taxes on food.

Check back with the Avalara blog to learn whether any of the above proposals become law.