Should States Put Food Back on the Table? An Examination of Food in the Sales Tax Base

Sales and use taxes constitute a substantial portion of state own-source revenue in North Carolina and across the United States, with their role likely to expand amid reductions in income tax rates. This bulletin examines the exemption of unprepared food from the state sales tax base, a common policy aimed at enhancing tax fairness but one that contributes to a narrowing tax base. Drawing on North Carolina data, where local sales taxes include food and report related revenue separately, the analysis proposes a five-point policy criteria framework—encompassing revenue effects, revenue-neutral rate adjustments, revenue stability, household equity, and intergovernmental impacts—to evaluate such exemptions. It then applies this framework to data on county and state sales taxes from 2012 to 2023. The resulting multifaceted assessment provides policymakers with insights into the trade-offs involved in the exemption. 

This bulletin is adapted from the article “A Framework for Sales Tax Base Expansion: Food Taxation in North Carolina and Applications for Other States,” published ahead of print by Public Budgeting and Finance (February 18, 2026) under the Creative Commons license CC BY-NC 4.0.