Summary — HB 1685 (Grocery Tax Relief Act) — Arkansas (95th General Assembly, 2025)
Status and timeline
- Introduced / Prefiled: December 20, 2024 (House).
- Passed and amended in both chambers (several House and Senate amendments adopted).
- Notification that HB 1685 is now Act 1008: April 22, 2025.
- Effective date in the Act: January 1, 2026.
Purpose / intent
- To create the "Grocery Tax Relief Act" and exempt sales of groceries (defined as “food” and “food ingredients”) from state sales and use taxes while preserving local municipal and county gross‑receipts taxation.
Key provisions
- State exemption: Removes state sales and use tax on the gross receipts or gross proceeds from sales of food and food ingredients. This includes removing the state levy of 0.125% imposed under Amendment 75 as applied to groceries.
- Definitions: Retains existing Arkansas definitions of "food" and "food ingredients" (substances sold for human ingestion; excludes candy, soft drinks, alcoholic beverages, tobacco, and dietary supplements). Senate and House amendments ensured consistent definitions for sales and use tax contexts and clarified the treatment of "prepared food."
- Prepared food excluded: Sales of "prepared food" remain subject to full state sales and use tax. Items specifically excluded from the "prepared food" definition (and thus covered by the exemption) include:
- Food that is only cut, repackaged, or pasteurized by the seller.
- Eggs, fish, meat, poultry, and foods containing these raw animal foods that require cooking by the consumer to prevent foodborne illness (per the 2005 FDA Food Code citation in the bill).
- Local taxes preserved: The bill and subsequent amendments (House H2; Senate S2) preserve local sales/use and gross‑receipts taxation:
- Municipal and county gross receipts taxes under the Arkansas Gross Receipts Act of 1941 and Arkansas Compensating Tax Act of 1949 continue to apply to food and food ingredients.
- Specific local enabling acts (Local Government Bond Act of 1985, various economic and project funding acts, and Multicounty Airport/Riverport Financing Act) are clarified to continue to allow local taxes on groceries regardless of the enabling act under which they were adopted.
- Senate amendment S2 specifically preserves collection of the border-city 1% sales/use tax (applies to the City of Texarkana).
- Conforming statute changes: Multiple code sections amended to remove groceries from certain state tax enumerations and to redirect affected revenue flows.
Fiscal and administrative impacts
- Estimated state sales and use tax revenue loss:
- FY2026 (partial year—5 months): approximately −$4.41 million.
- FY2027 (full year): approximately −$10.92 million.
- FY line‑item breakdowns (examples): Conservation Fund (−0.125% slice), State Central Services, Constitutional Officers — amounts shown in DFA fiscal notes.
- Local city/county revenue: DFA fiscal notes indicate no net loss to local sales/use tax totals because local gross‑receipts taxes continue to apply; earlier versions noted impacts specific to Texarkana which were addressed in amendments.
- Administrative cost: Arkansas Integrated Revenue System (AIRS) programming estimated at $14,000; other procedural updates (forms, websites, training) required.
Who is affected
- Consumers: Will no longer pay the specified state sales/use tax on qualifying food and food ingredients beginning Jan 1, 2026; prepared foods remain taxable.
- State finances: Reduction in state sales/use tax revenue (~$11M annually estimated).
- Local governments: Continue to collect municipal and county gross‑receipts and certain local sales taxes on groceries per the bill’s clarifications and amendments.
- Retailers and tax administrators: Must implement new exemption rules and update systems and training.
Sponsors
- Primary sponsors: Rep. Underwood (House) and Sen. Hester (Senate); numerous co‑sponsors listed in the bill.
