CAPITOL JOURNAL : Sponsor of Candy Levy Has Answer: Taxes Aren’t Fair

“Nobody said taxes are fair,” offers up Sen. Wadie P. Deddeh, a San Diego County Democrat who is carrying one of the most controversial tax bills of this budget season: legislation to extend the sales tax to candy and snack foods.

Deddeh, allied with Republican Gov. Pete Wilson and other Democrats to push the sales tax bill, is fighting hard against a well-organized lobbying campaign by the candy and snack food industry.

But so far he has no ready answers--other than taxes aren’t fair--for such weighty questions as: Why would Shredded Wheat remain untaxed, like most foods, while a sales tax that could go as high as 8 1/4% in some counties would be levied on Triscuits, a salty cracker made from essentially the same ingredients?

The questions are being raised by the candy and snack food industry, and while they have yet to generate the national interest of President Bush’s choice of snack foods (pork rinds), Deddeh admits they are the kinds of questions that “you raise if you want to kill a bill.”

On Wednesday, a coalition was announced to oppose the bill. Along with big food concerns, such as Nabisco Brands Inc., Hershey Foods Corp., Frito-Lay Inc. and the California Grocers Assn., groups representing senior citizens, minorities and welfare rights organizations have joined the fight to kill the tax.

Opponents of the tax, which would raise an estimated $270 million a year to help correct the state’s looming $14.3-billion deficit, have been hitting hard on the fairness question.

Such products as Fritos, Twinkies, Hershey bars, cooked popcorn and a multitude of other candy and snacks would no longer be classified as food. Without that designation, they would lose their tax-exempt status, making them eligible for the new sales tax. Opponents find the proposed reclassification arbitrary and therefore unfair.

But welfare rights organizations and advocates for the poor are fighting it on grounds that the tax would disproportionately hit low-income Californians who are among the biggest consumers of these products.

Board of Equalization member Brad Sherman criticized the Deddeh bill at a news conference Wednesday, saying: “It exempts products favored by the country club set. Brie, caviar, lobster are going to remain tax free under this proposal, but the kinds of things that ordinary Californians eat every day--cookies, potato chips--are going to be subject to tax.”

Sherman outlined an imaginary “Super Bowl party” where the hosts bought $14.80 worth of chips and candy and paid a $1.04 tax. He compared that to a figurative art gallery opening where guests were treated to $979.25 worth of caviar, truffles, salmon, lobster tails and escargot and their hosts paid no tax. “This tax is preposterously unfair,” Sherman said.

Deddeh said the issue should not be one of fairness but of finding a source of money to help close the budget deficit. The tax on candy and snack foods is part of a larger proposal for statewide sales tax increases, higher motor vehicle assessments and other tax increases.

“We are now in a sinking ship, and we have to bail out the ship, and everyone has to participate,” he argued. He noted that candy was taxed for many years until the Legislature approved a special exemption in 1972.

Deddeh raises the hackles of opponents when he argues that candy and snack foods are not as much of a necessity as dietary staples. “I can do without Sees candy but I cannot do without milk, eggs, bread or vegetables. Some people like candy. God bless them, let them eat all of it they want. I just think it should be taxed.”

Companies that would be hit by the tax, such as Frito-Lay, have been trying to defeat the proposal for months. Among their fears is that California might start a chain reaction that would lead other states to separate candy and snacks for tax purposes.

Frito-Lay hired lobbyist David Swoap, onetime director of the state Health and Welfare Agency, to make sure legislators know that snack foods can be more nutritional than foods that would be left untaxed. Potato chips, for example, provide vitamins C and B-6.

Nabisco delivered big boxes of cookies and crackers to newspaper offices for taste tests, asking why the proposed legislation would tax Triscuits, but not Shredded Wheat, even though both products are essentially the same.

As with almost any tax bill, there already are exemptions in the Deddeh bill.

Peanuts, almonds, apples, raisins and other snackable fruits and nuts would not be taxed. Some say this special exception was made by legislators reluctant to offend powerful agricultural interests, who have considerable clout in the Legislature.

Another well-known sugary substance, ice cream, would also be exempt. As a result, frozen candy bars, even though identical to dry candy sold over the counter, would be exempt.

Opponents are seizing on such anomalies and attacking the bill as an “administrative nightmare” for grocers, who must sort out taxable from non-taxable products.

But Johnnie Lou Rosas, a consultant with the Senate Revenue and Taxation Committee, said figuring out the difference between a taxable food and a non-taxable one should be fairly simple.

“Look,” she said, “everyone knows what a snack food is. It’s something you tear open on your way out of the supermarket and eat on the way home. When was the last time you tore into a grocery bag for a piece of Shredded Wheat? A Triscuit, maybe, but everyone knows Shredded Wheat goes in a bowl with milk and maybe a little sugar.”

Another way of figuring it out, Rosas says, is to use this rule of thumb: If you have to take it home and cook it or prepare it in some way, it is probably food that will continue to enjoy a sales tax exemption.

Take frozen pizzas, she explains. Even though the industry bible, Snack Food magazine, considers frozen pizzas a snack food, they are not defined that way under the Deddeh bill.

As for popcorn, the uncooked kernels that come in cans or bags would continue to enjoy an exemption, but the cooked stuff would be taxed.

But what about snack mixes that include peanuts (nontaxed), pretzels (taxed) and dry cereal (nontaxed)?

Ultimately, if the tax legislation is passed, the Board of Equalization will have to go down a grocery list, item by item, and determine which products would be taxed and which would not.