On Jan. 1, the state sales tax on food goes down by 2 percent.

Simple, rightfi

Think again.

Food retailers have been scrambling for months to prepare for the tax reduction, which affects many, but not all, of the items available at grocery and convenience stores -- and at times the distinctions can be convoluted.

"That is an understatement," said Jim Olsen, president of the Utah Food Industry Association. "The whole intent, as I understand it, was to get a tax break for food sold for home consumption. The problem is, between the concept and the implementation it gets very complicated."

Generally speaking, unprepared food will be taxed at the lower rate in the New Year, while food that is cooked or prepared by a store or sold with utensils will remain at the full rate.

The rule makes for some strange divisions.

Crushed ice, for example, will be taxed at the lower rate because it can be ingested in a drink. Block ice, however, is not considered food because it's used for refrigeration, according to a "food versus non-food" list prepared by the Utah Tax Commission.

Another example: A soft drink in a bottle will be taxed at the lower rate because it's not mixed at the store. A fountain drink is mixed on-site and is sold with utensils -- a cup, lid and straw -- and is therefore prepared food taxed at the higher rate.

Movie theater concession stands will be particularly conflicted. Candy gets the tax deduction, while popcorn and fountain drinks -- once again, prepared on-site -- will not.

"We've been working on this for months," Olsen said. "I've been in communication almost daily with the tax commission, trying to chart a course through this maze."

The distinctions are necessary, said state Sen. Michael Waddoups, R-West Jordan, and one of the sponsors of legislation lowering the tax rate.

"There's a difference between food for taking home and restaurant food," he said. "If you're going to have food that's competing with restaurants, that's the one we decided to leave the tax on."

The original goal -- set forth by Gov. Jon Huntsman Jr. and championed by the state House of Representatives -- was to remove the sales tax from food entirely. The state Senate was cooler toward the idea; however, lawmakers eventually reached a compromise.

Lowering the tax rate is expected to reduce General Fund revenue by $35 million in the 2007 budget year and $70 million in 2008, according to a legislative analysis.

But it's going to cost stores money to retool and sometimes replace their checkout systems. The state set aside $6 million to help defray those costs.

"We're talking tens of millions of dollars to make the changes," Olsen said, noting that a typical grocery store has to catalog 80,000 different items.

Waddoups said lawmakers took the complicated scenario into account.

"That's why it was delayed for a year -- so they can make the adjustments," he said. "It shouldn't be that big of a deal to anyone who's done their prep work, knowing it was coming. It's a computer programming issue."

Stores should be ready Jan. 1, Olsen said, although it's the first time Utah food retailers have had to implement a multi-tier tax system. And he's also worried about customer expectations.

"I'm sure there are going to be a lot of surprised customers who are going to go to the grocery store on the first of January expecting there to be no sales tax, and that's not the case," Olsen said.

"We just hope they don't take it out on us. We're just trying to comply with the law."

Most of Utah County pays a 6.25 percent sales tax; Orem is slightly higher at 6.35 percent. The lower food sales tax will be 4.25 percent or 4.35 percent, respectively.

On the web:

tax.utah.gov/sales/food_rate.html

This story appeared in The Daily Herald on page A1.