SB1555

SECTION 1. The legislature finds that the cost of living in Hawaii is extremely high and too many residents are struggling to pay for housing, food, and medication. According to data from the Missouri Economic Research and Information Center, Hawaii had the highest cost of living in 2019. Coupled with the high cost of living, persistent inflation following the coronavirus disease 2019 (COVID-19) pandemic has further exacerbated the problem of residents being unable to afford necessities like groceries. The legislature further finds that thirty-two states, plus the District of Columbia, currently exempt most foods purchased for consumption at home from the state sales tax. Grocery sales tax is often considered regressive and disproportionately hurts working families and may affect the quality, diversity, and even the amount of food they can afford to put on the table, especially during times of economic crisis.

The legislature also finds that the COVID-19 pandemic led to approximately two hundred fifty thousand workers in Hawaii losing their jobs, leaving all those families to suffer financially. Exempting groceries and nonprescription drugs from the general excise tax will help many families and allow them to put food on the table and maintain the health of their families. In addition, workers and their families who may save money on groceries and nonprescription drug purchases will be able to spend that money elsewhere in the economy, thus allowing the money to continue to circulate, which will help many businesses and continue to generate revenue for the State.

The Hawaii department of taxation verbally scored this measure during a hearing of Senate Bill No. 608 (2022) on February 10, 2021 as costing an average of $230,000,000 per year. The legislature needs to a have more information about how this estimate was gathered and a more formal scoring of this measure to estimate the projected fiscal impact to develop an appropriate offset in the form of reducing expenditures or generating additional income from new revenue sources. Considering that a recent 2021 study shows that taxing groceries correlates with increases in food insecurity, this is a priority issue. The study found that taxing groceries on average at 4.2 per cent increases the probability of low-income household food insecurity by 3.3 per cent.

A new study co-authored by Harry Kaiser, the Gellert Family Professor at the Charles H. Dyson School of Applied Economics and Management, finds that even a slight grocery tax-rate increase could be problematic for many stating, "an increase of one per cent to four per cent may sound small, but after several trips to the grocery store, the extra costs can create serious burdens for the lowest-income families. We found that even the slightest increase in tax rate correlated to an increased likelihood of food insecurity. Grocery taxes that rose by just one percentage point led to a higher risk of hunger in households".

Yuqing Zheng, associate professor of agricultural economics at the University of Kentucky and former research associate under Kaiser at Cornell and Jason Zhao, Master of Science co-authored Putting Grocery Food Taxes on the Table: Evidence for Food Security Policy-Makers, which was recently published in the Food Policy journal. The study focused on sales taxes on foods at retail outlets such as grocery and convenience stores but not at restaurants. Time and time again, research shows that taxing groceries is one of the worst policies state governments can enact to erode food security and resilience, hurt working families, and increase poverty. Given woes of the current economy, it is time for elected officials to develop a workable roadmap for weaning government off this regressive tax policy.

Hawaii has a long way to go in improving food insecurity and resilience in the State. Removing the general excise tax from food and medicine is a step that the State can take today that will substantially and positively impact the State's food insecurity and resilience crisis. Currently, thirteen states impose levies on groceries. Seven states tax groceries at the level of the ordinary tax rate including Alabama, Mississippi, South Dakota, Hawaii, Idaho, Kansas and Oklahoma. The other six states, Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia, tax groceries at reduced rates. Taxing food not only hurts those living paycheck to paycheck, but it also erodes savings and investment opportunities for the middle class and makes Hawaii a much less desirable place to start a food-related business. If Hawaii is to meet its goals of increasing the availability of locally grown and manufactured food, it must show that it prioritizes making the food supply chain resilient with its budget.

Hawaii is the most remote location in the world geographically, which puts it at a huge disadvantage when addressing concerns of food resilience. A resilient food system can withstand and recover from disruptions in a way that ensures a sufficient supply of acceptable and accessible food for all. The State has a lot of work to do to ensure that this becomes a reality. With government estimates that Hawaii has a three-day food supply in the likely event of our ports being shuttered from a natural disaster, the State should expect legislators to act with extreme urgency to support the State's local food supply chain's resilience.

The purpose of this Act is to:

(1) Exempt general excise tax for the sale of groceries that are eligible under the Supplemental Nutrition Assistance Program or Special Supplemental Nutrition Program for Women, Infants, and Children; and

(2) Exempt general excise tax for the sale of nonprescription drugs.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§237- Exemption for eligible groceries. (a) There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds or income received from the sale of all groceries eligible for purchase under the federal Supplemental Nutrition Assistance Program and Special Supplemental Nutrition Program for Women, Infants, and Children within the State, regardless of the means of purchase and the eligibility of the purchaser for Supplemental Nutrition Assistance Program or Special Supplemental Nutrition Program for Women, Infants, and Children benefits.

(b) For the purposes of this section:

"Food" or "food product" means substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value.

"Groceries" means any food or food product for home consumption. "Groceries" may be further defined by the department by rule through the enumeration of items in rules or tax informational release; provided that the department shall consult with the federal Food and Nutrition Service of the United States Department of Agriculture in further defining the term "groceries" for purposes of the Supplemental Nutrition Assistance Program and Special Supplemental Nutrition Program for Women, Infants, and Children.

§237- Exemption for nonprescription drugs. (a) There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds or income received from the sale of nonprescription drugs.

(b) For the purposes of this section:

"Drug" means:

(1) Articles recognized in the official United States Pharmacopoeia, official United States Pharmacopoeia Dispensing Information, official Homeopathic Pharmacopoeia of the United States, or official National Formulary, or any supplement to any of these publications;

(2) Articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in humans or animals;

(3) Articles, other than food or clothing, intended to affect the structure or any function of the body of humans or animals; or

(4) Articles intended for use as a component of any article specified in paragraph (1), (2), or (3); provided that the term "drug" does not include devices or their components, parts or accessories, cosmetics, or liquor as defined in section 281-1.

"Nonprescription drug" means any packaged, bottled, or nonbulk chemical, drug, or medicine that may be lawfully sold without a practitioner's order."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2023.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	1555
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII