Senate Dems: Tax officials inflated prepared foods levy
Senate Democrats backed away Monday from the new sales tax surcharge on prepared foods, saying Gov. Ned Lamont’s administration made it far broader in scope than lawmakers intended.
The announcement comes on the heels of objections raised last week by House and Senate Republicans, as well as new cost projections from nonpartisan staff that showed consumers will pay $44 million more than originally projected over the next two years.
“We were shocked to see the DRS has somehow interpreted the language in the budget to significantly broaden the base on what meals and beverages could be covered by the sales tax,” Senate President Pro Tem Martin M. Looney, D-New Haven, and Senate Majority Leader Bob Duff, D-Norwalk, wrote in a letter to Department of Revenue Services Commissioner Scott Jackson. “This interpretation goes against the legislative intent of the new law.”
All but three of the 22 Democrats in the 36-member Senate signed Looney and Duff’s letter. And a spokesman for the Senate Democratic caucus said the other three did not oppose the letter, but simply couldn’t be reached before the message was sent out Monday.
Lawmakers have been scrambling since last week when GOP legislators disclosed a new policy statement from revenue services officials offering retailers guidance on how to apply the new sales tax surcharge on prepared foods when it takes effect on Oct. 1.
The tax hike was described — when legislators adopted a new state budget in early June — as a 1 percent surcharge on restaurant food or on “prepared meals.” In other words, someone who purchased a grinder and small soda combination, even at a supermarket, would pay 7.35 percent sales tax, rather than the base rate of 6.35 percent.
Yet when DRS released the policy statement this month, it covered a much wider range of prepared foods.
Concerns intensified last Friday when the legislsture’s nonpartisan Office of Fiscal Analysis revised its estimate on how much revenue the surcharge would generate.
Based upon the policy statement, OFA projected the tax would generate $158 million over this fiscal year and next — nearly 40 percent more than lawmakers anticipated. By 2020-21, consumers would pay more than $90 million per year.
The extra penny will come on each dollar spent on a wide array of foods, many of which might not be thought of as a “meal,” critics said.
These items include: popsicles and other frozen treats, doughnuts and bagels, pizza slices, hot dogs, smoothies, power bars, a hot bag of popcorn, and even pre-packaged bags of lettuce and spinach.
The surcharge also applies to beer, fruit juices, milkshakes, hot chocolate, wine, and distilled alcohol like brandy or rum. It even applies to coffee and tea if purchased prepared to drink, rather than as coffee grounds or in tea bags.
Senate Democrats have asked the department to issue a revised policy statement.
Max Reiss, communications director for Gov. Ned Lamont, said the administration is reviewing the letter from Senate Democrats.
The administration said many tough choices were made last spring when the governor and legislature approved a new, two-year state budget. That plan averted a projected deficit of more than $3 billion, and did so without increasing state income tax rates.
One Democratic senator who signed the letter, Cathy Osten of Sprague, did not initially recommend any changes to the DRS policy statement when Republican lawmakers objected last week.
Osten, who co-chairs the Appropriations Committee, instead said the GOP opposition was unfair, given that the minority offered no plan to balance state finances last spring.
“I’m still waiting for the Republican budget,” she said. “I feel it is a little bit disingenuous.”
But Republicans said the prepared foods tax was little more than a “money grab” by Lamont and Democratic legislators.
“The governor is not ‘shocked’ by the DRS interpretation, so why are Democrat legislators?” the top Republican in the Senate, Len Fasano of North Haven, said Monday. “It’s their budget, and it is time they own it. Stop blaming others for your mistakes. Show some leadership and convene a special session to right this wrong.”
Fasano called the grocery tax an “embarrassment” and “a clear example of why people don’t trust their Connecticut state government.”
House Democratic leaders have not weighed in yet on the tax hike.
But one rank-and-file Democratic state representative, Liz Linehan of Cheshire, wrote a letter Monday to the Department of Revenue Services, also charging that the department’s interpretation of the surcharge goes beyond legislators’ intentions.
“This unilateral change without the input of taxpayers or the legislature erodes the trust we work so hard to earn,” she said.