Arkansas Elimination of Taxes on Food and Medicine, Amendment 3 (2002)
|Elimination of Taxes on Food and Medicine|
Text of measure
The language that appeared on the ballot:
An amendment to the Arkansas Constitution, abolishing and prohibiting taxation on food and medicine; defining "food" to mean "any item that was eligible for purchase with federal food stamps on April 1, 2001 or is otherwise available under any state or federal nutrition assistance program as existing on April 1, 2001;" defining "medicine" to mean "any item being furnished or available at a reduced cost under any state or federal health care assistance program on April 1, 2001;" providing that all new, additional, or increased taxes not exempting food and medicine shall be void; providing that taxes on food and medicine established before the effective date of this amendment shall expire on July 4th 2003, except that those required to secure bonds or other contractual obligations may be extended to satisfy those obligations; and requiring that all revenue from such taxes regardless of source shall be used exclusively to fulfill and terminate such contracts at the earliest possible date. This amendment abolishes all forms and types of taxes on food and medicine (as those terms are defined herein) and will result in a loss of revenue for state, county, and city governments, as well as school districts, with the result that a reduction in the services provided by those entities and/or an increase in other taxes may be required.
What is the current situation?
As of August 2002, the State of Arkansas, 72 counties and 235 cities impose a sales tax on food purchases. Prescription medicines are exempt from the sales tax as is food purchased with food stamps and some nutritional assistance programs.
State Tax Revenue from Sales Tax on Food The state of Arkansas taxes food at the rate of 5.125%. Of this amount 0.125% is collected and given to the conservation fund, 0.5% is collected for the property tax relief fund, and 4.5% goes to the state general fund. For every $100 you spend on food purchases (excluding food purchased with food stamps), you pay $5.125 in state sales tax.
Local Government Tax Revenue from Sales Tax on Food Seventy-two counties have a sales tax on food. County sales tax rates range f rom 0.25% to 3% with nearly half of the counties in the state (37) imposing a 1% sales tax. Thirty counties have a sales tax on food of more than 1%, but only one county has a sales tax on food greater than 2%. Two hundred thirty-five cities impose a sales tax on food. City sales tax rates range from 0.25% to 3%. Nearly two-thirds of the cities with a sales tax on food (65%) impose a 1% sales tax while the majority of the remaining cities impose a sales tax greater than 1%.
How would government services be affected?
If the amendment passes no new, additional, or increased taxes may be imposed on food and medicine. However, taxes on food and medicine established before the effective date of this amendment will continue to be collected until July 3, 2003. Beginning July 4, 2003 taxes will not be collected on food and medicine, except where sales tax revenue was used to secure bonds or other contractual obligations. Sales tax revenue on food and medicine will continue to be collected until these bonds and obligations are paid.
It is not clear how much state and local revenue would be lost if the amendment passes because it is unknown how "food" and "medicine" will be defined when the regulations are written. Likely, the courts will be called upon to define "food" and "medicine" in the context of the ballot title.
With these uncertainties, the Department of Finance and Administration (DFA) has estimated the revenue that would be lost under different possible interpretations. Proponents argue that these are estimates of the money that will remain in the pockets of citizens, and businesses that purchase food, if the amendment passes.
If food is defined to include all three components above, the Department of Finance and Administration estimates lost revenue as follows:
State Revenue Loss: $279.7 million - General Fund: $245.6 million - 1/8 cent Conservation tax: $ 6.8 million - 1/2 cent Property Tax Relief: $ 27.3 million
Local Revenue Loss: $114.1 million
Medicaid Fund Loss: $ 42.0 million
Estimated Tax Revenue Lost: $435.8 million
Estimated Federal Match Loss: $126.0 million
Estimated Total Revenue Loss: $561.8 million
If restaurant sales are not defined as food, then the sales tax on restaurant sales would still be collected and the revenue lost by state and local governments would be less than the above calculations. Various scenarios could exist depending on the definition of food.
How would households be affected?
If the amendment passes and no new taxes are passed, households will pay less sales tax. How much less sales tax is the question. If "food" is interpreted to mean food purchased to be eaten at home, then using information from the Consumer Expenditure Survey we can estimate the amount of sales tax savings from food purchases. The Bureau of Labor Statistics estimates that a household making between $20,000 and $29,999 a year will spend $2,921 on food purchases eaten at home. Households in this income category would not have to pay the $150 in state sales tax and any local sales taxes collected on this food if the amendment passes. If local county and city sales taxes combined are 2%, then the household would save an additional $58 for a total sales tax savings of $208.
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