A restaurant tax on some grocery store purchases? What could be coming

Utah state Sen. Lincoln Fillmore was grabbing a quick meal in the cafe area of the Harmons grocery store in downtown Salt Lake City when he realized he wasn’t charged the additional restaurant tax for his burger and fries. The same thing happened with a sandwich served at a Great Harvest Bread Company store and a soft-serve ice cream cone at a Macey’s supermarket.
Yet, the South Jordan Republican said, the county-imposed 1% tax on food and beverage sales at restaurants was collected on similar foods purchased at fast-food outlets on top of the state and local sales tax that varies by jurisdiction. That sales tax also also applies to prepared food items as well as nonfood items sold in grocery stores, but Utah taxes food at a lower rate, 3%.
So Fillmore said he’s seeking a change in the law during the 2025 legislative session to spell out that the restaurant tax must be added to sales made in “portions of a grocery store that function like a restaurant.” He said closing what he sees as a tax loophole used by only a handful of retailers, is “just a question of fairness and equity in the marketplace.”
His draft bill, however, got a mixed reception at the final meeting in November of the Legislature’s Revenue and Taxation Interim Committee. Members ended up not taking action, meaning the bill will go through the regular hearing process during the upcoming legislative session.
Fillmore told the committee that when the restaurant tax was implemented in the early 1990s, it wasn’t intended to apply to ready-to-eat foods sold at grocery store deli counters because they would be consumed off premises. Now, with some grocery stores operating restaurants, the tax is being collected based on location rather than what’s being sold.
“Tax treatment ought to be equal,” Fillmore said, acknowledging that his bill currently exempts service stations and convenience stores but could be changed to apply to them. He said the added tax is estimated to bring in roughly $1 million to county governments, about a 1.5% increase in the current collections, but would have no impact on state revenues.
Rep. Jen Dailey-Provost suggested the committee back the bill.
“It comes down to the state of Utah giving a competitive advantage to some restaurants over another and I think we have an opportunity to fix that,” the Salt Lake City Democrat said.
Rep. Norm Thurston, who’d said earlier in the hearing that a better solution might be getting rid of the restaurant tax altogether, wasn’t interested. He said shoppers buying groceries “sometimes get tricked” into making impulse purchases like ice cream cones but that doesn’t make the store a restaurant.
“Let’s just call this what it is. It’s a tax increase. Not only a tax increase, but a tax increase on food,” the Provo Republican said. “I think there’s a lot of people in our state that don’t think food should be taxed at all. And I certainly don’t think that they think we should be up here increasing the tax on food.”
Not surprisingly, the bill was backed by the Utah Restaurant Association and opposed by the Utah Retail Merchants Association and the Utah Food Industry Association.
“We want to be treated fairly,” said Melva Sine, the restaurant association’s lobbyist, describing the restaurant tax receipts as being used to pay for convention facilities and other projects that boost tourism. She said grocers around the country are being encouraged to open restaurants as a way to generate new revenues. “This is competition to the industry.”
Dave Davis, the lobbyist representing food retailers, said the bill would making taxing even more complex since grocers are responsible for applying either the food or sales tax to each of the approximately 30,000 items on their shelves. The system is already imperfect, he said, citing as an example crushed ice being taxed as food while block ice subject to the higher sales tax.
While there are Starbucks, Arctic Circle, Dairy Queen and other branded restaurants located in grocery stores that already collect restaurant tax, Davis said they shouldn’t be confused with the store’s deli counter, where customers might go to buy an ice cream cone.
“Let’s just be clear about what we’re doing. This is a tax increase. It is a policy shift,” he said, urging more work on the bill. “Right now we have the policy that if you’re selling restaurant-type food and it’s incidental to your primary business, then we don’t have you collect the restaurant tax.”
The proposal comes after a successful legal challenge to a Utah ballot amendment stopped a vote that would have removed the state’s 1.75% portion of the sales tax on food. Utah lawmakers tied ending the unpopular tax to lifting the Utah Constitution’s restrictions on using state income tax collections for public education and some human services needs.
Fillmore said his proposal would not have impacted the restaurant tax and “is certainly not an additional tax on food.”