New CT Grocery Tax: Here's Why There Is Hope It May Not Happen

HARTFORD, CT — Top Democratic politicians are urging the state Department of Revenue Services to change its interpretation of the prepared meals tax after it was discovered that DRS had included many items outside of the legislative scope in its policy statement of what can be taxed.

The new taxes go into effect Oct. 1 and grocery stores have been scrambling to figure out what items fall under the new tax.

Lawmakers increased the tax on prepared meals from the state base rate of 6.35 percent to 7.35 percent. It applies to restaurant meals, meals prepared at grocery stores and according to DRS a whole bunch of other items. Republican lawmakers asked the Office of Fiscal Analysis to run the numbers again for tax projections under the new interpretation and they came in 40 percent higher than the original.

The DRS interpretation features some nuanced items. Buying five loose cookies is taxable, but buying six isn’t. A bag of lettuce that is eight ounces or less is taxable as are meal replacement bars. Prepared meals such as rotisserie chicken and hot sandwiches sold at grocery stores are also taxable.

Gov. Ned Lamont has also joined in directing DRS to review its guidance and interpretation quickly.

Related: SURPRISE: Here's Why You'll Soon Pay More For These Grocery Items

“I want to ensure that the budget that was approved by lawmakers is enacted in the spirit in which it was passed,” Lamont said.

Senate President Martin Looney (D-New Haven) along with Senate Majority Leader Bob Duff (D-Norwalk) and other Democratic senators criticized DRS for not testifying on the bill and only offering its interpretation a few weeks before the law went into effect. He urged DRS to come up with an interpretation that was more in line with the legislative intent of the law.

“This interpretation goes against the legislative intent of the new law and against the interpretation of the new law by all three of our nonpartisan offices,” Looney said in a letter to DRS Commissioner Scott Jackson.

Below is the full letter from the leading Democratic senators to DRS:

Dear Commissioner Jackson:

We are writing in reference to the recent Department of Revenue Services Policy Statement (PS 2019(5)) that was issued on September 6, 2019.

We were shocked to see that DRS has somehow interpreted the language in the budget (PA. 19-117) to significantly broaden the base on what meals and beverages would be covered by the sales tax. This interpretation goes against the legislative intent of the new law and against the interpretation of the new law by all three of our nonpartisan offices.

As you may be aware, this language was incorporated in Raised Bill 7408 that was heard by the Finance, Revenue and Bonding Committee on April 10, 2019. Unfortunately, as has become commonplace, DRS did not testify on this bill, so if DRS did think this language would drastically increase the base of taxable items, that opinion was not shared with the General Assembly.

Subsequently, when this language was included in the tax package that was voted out of the Finance Committee (SB 877), again we were not given any DRS input on this interpretation.
Furthermore, during our extensive budget negotiations, and discussions of the fiscal implications of this language in the final budget, never did DRS or the Office of Policy and Management indicate that their interpretation of this language was any different than that of our Office of Fiscal Analysis or Office of Legislative Research.

This unexpected interpretation from DRS would lead to a drastically different fiscal note from OFA and a significant change to our budget assumptions currently adopted, something that was never intended by the General Assembly or the administration.

We are asking that DRS, in consultation with OPM, revise this Policy Statement to more accurately reflect the legislative intent that was clear to all parties during our budget negotiations.