In an era of "no new taxes" pledges, you will soon find a stealthy tariff lurking on your cafeteria tray.
"We agonized over this," said Alice Gorman, deputy commissioner of the Mississippi State Tax Commission. "We just got to looking at all the (college meal plan) variations, and we realized that there was an issue that needed addressing, so we addressed it."
The agency has decided to cash in on the state-mandated obligations of all public and private colleges and universities to count meal plans as taxable income, tacking on the state's 7 percent sales tax. Meal plans have been overlooked in terms of taxation, though Gorman says they have never officially been exempt.
"In the olden days, when you went to college in this state, you had one fee for room and board. The determination made at that time was that there was no way to cost out that meal, so it was a lump sum. Room and board was not taxable, so we didn't attempt to tax it," Gorman said.
Today most colleges and universities have adopted creative funding strategies. There are varied meal plans, and sometimes the student doesn't even have to opt in. Some colleges don't have cafeterias anymore. Many provide fast food from nationwide vendors, but these franchises are competing with the private sector now, commission officials say.
Clyde Muse, president of Hinds Community College's Raymond campus, said the college was already battling rising tuition costs and had not been expecting the tax.
"For years we've had a room and board policy that did not include taxes, so it was quite a surprise to me when I learned that they had decided that we were not exempt. There was nothing warning me about this during the last legislative session," Muse said. "In our case, if you live in the dormitory, you don't have any choice. Students have to buy their meals with the room, and it's just like raising the tuition by 7 percent, and we've got to work real hard to keep (room and board) financially accessible, so the students can go to school. There's nothing we can do but pass the cost along to the students."
Even though outgoing Higher Education Commissioner Richard Crofts said last week that students won't have to pay the tax on their meal plans until summer 2006, Jackson State University Vice President for Business and Finance Lillian Frierson said the development had the university "totally caught off guard."
"When you look at taxing meal plans, K-12 have meal plans, too, so you're opening a can of worms that could affect more than just the colleges and universities.
"I don't think they want to touch this," Frierson said.
Bob McIntyre, director of Citizens for Tax Justice in Washington, D.C., described taxes on education and other necessities like groceries as "regressive," meaning they fall more heavily on middle- to low-income people. He said they were an increasing problem in governments that won't raise taxes to pay the rising costs of government operation.
"There are few things more regressive to tax than food and meals, especially cafeteria meals, because everybody has to eat, and at some point you reach your limit," McIntyre said. "It's like this: either you pay for the government or you don't have government or government services. ... The correlation that taxes stifle business runs the other way. You need roads and the education and all the other things the government does to be successful with business, as well as everything else."
Rep. Joey Fillingane, R-Sumrall, chairman of the House Conservative Coalition, insists, however, that local taxes like college taxes are a more fair way of taxing than a blanket state tax.
"One argument you may hear is that the only people being taxed are the people who are using the services, because everyone's not in college," Fillingane said. "Not everyone's got a child that will go to college, and so the argument is why tax everybody to pay for very few people who are using the meals at the universities and colleges? If you're going to tax anybody, it should probably be fairer to tax the people using the service and benefiting from it than everyone across the state for it."
Fillingane added that there shouldn't be any reason to regularly raise taxes as long as economic growth remains robust.
"As you improve the business climate in the state through the advent of tort reform and encourage business like Nissan, and hopefully Kia, you don't have to increase taxes to increase revenues," Fillingane said.
McIntyre dismisses this argument with a comparison to the taxing policies of states with considerable more economic growth than Mississippi. "It isn't that taxes go up every year," he said. "(T)hey have to keep up with the economy, and money has to be sufficient to provide the public services that make the economy work. If you have a work force that's not educated and a transportation system that keeps everybody stuck in traffic, then you end up with an economy that's very far off."
Gorman says that the new attention to meal plans has no connection with the state budget, which has been regularly strapped for cash and has consistently battled shortfalls with various one-time monies such as a recent million-dollar award settlement from the now defunct WorldCom for tax evasion.
"This has nothing to do with the financial condition of the state," Gorman said. "This was just one of those things. It came out of a recent audit."
Motivations aside, Gov. Haley Barbour, a champion of "no new taxes," said the decision was inconsistent with his own views. "I was surprised to learn that the state tax commission had made that decision," Barbour said at a recent press conference, "but before I criticize them, I need to hear their side of the story. I've never been for tax increases, and this smells like a tax increase to me."
Tax Commission Chairman Joseph Blunt, who was appointed by Barbour, oversaw the decision to start taxing meal plans. He said education has been steadily slipping down on the state's list of priorities over the last four years. "I feel very strongly that we need to have greater state support for education on all levels. What has been taking place since 2000 is we've been losing state support and we have to pass that loss on to the student, or in the case of K-12, to the local school boards," Blunt said.
The cost for a semester at Hinds runs $850—twice the price tag the college charged in 2000. Muse said the doubling of costs is a result of faltering state funding.
Gorman said that should colleges re-assimilate meal plans with boarding fees they would no longer be accountable for the tax. Frierson said JSU would be considering that possibility, among others.