Grocery tax cut gets final passage; heads to Gov. Kay Ivey
Bill would cut state sales tax 1% in September; make further cuts dependent on revenue growth
Alabama is one of three states in the nation that fully tax groceries. (Getty)
Alabamians could soon see the first-ever reduction in the sales tax on groceries.
The Alabama Senate voted 31-0 Thursday for a bill that would cut the state tax on most groceries from 4% to 3%, with a further reduction possible if the Education Trust Fund budget grows. The House concurred in Senate changes Thursday afternoon, sending the bill to Gov. Kay Ivey.
“This is going to be great for working Alabamians,” said Sen. Andrew Jones, R-Centre, who negotiated the terms with colleagues in the House of Representatives. “Folks are struggling to put food on the table. I hear from constituents all the time that they are paying more for grocery taxes. I have said it many times, I will say it again, grocery tax receipts have gone up, not because the tax rates have changed but because inflation, prices on food have gone up, so people are paying more in taxes. That is untenable.”
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Alabama is one of 13 states that taxes groceries, and one of three that taxes them fully. With local levies included, state residents can pay up to 10% on their groceries.
Efforts to repeal the tax go back decades but have been stymied by the impact of the sales tax on the Education Trust Fund. The tax brings over $600 million a year to the ETF, currently standing at $8.2 billion. Legislators had been reluctant to replace the lost revenue with something else. But significant growth revenue in this year’s budget left an opening for legislators.
HB 479, sponsored by House Ways and Means Education Committee Chair Danny Garrett, R-Trussville, would cut the state tax on groceries eligible for the Supplemental Nutrition Assistance Program (SNAP) to 3% on Sept. 1. The state tax would be cut to 2% in 2024, if receipts to the ETF grow by 3.5% year over year.
The House-passed version of the bill would have only required growth of 2%, but delayed implementation of the 2% tax rate to 2025.
Under the Senate-passed version of the bill, a household paying $500 a month for groceries and living in a community with a combined 10% tax rate would see its yearly food tax bill drop from $600 to $540 under the 3% levy, and to $480 under the 2% levy.
“I think this year, there was just a this was something the voters wanted something that people wanted and we heard that loud and clear,” Garrett said after the vote on Thursday. “And I think it was nothing more than that.”
The bill would also freeze local sales taxes on SNAP-eligible food. Local governments could lower those taxes but would not be able to raise them over their current rates.
Jones said Garrett originally wanted a growth rate of 6%, but Jones did not believe that would be sustainable. In exchange for reducing the growth cushion, Jones agreed to accelerate the reductions by a year.
“When the governor signs this bill, city and local rates will be frozen,” Jones said. “That will be the hard ceiling. They can decrease. If they change their mind they can come back, but not above the cap that will be in place as of her signature.”
Legislators had been having conversations about reducing the grocery tax for the past few months. However, legislation began to move only late in the session.
The measure has enjoyed bipartisan support, with legislators on both sides of the aisle filing bill to at least reduce the grocery tax, if not repeal it outright.
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Sen. Merika Coleman, D-Pleasant Grove, and Rep. Penni McClammy, D-Montgomery introduced their versions.
McClammy, citing the work of former Rep. John Knight, D-Montgomery, on the bill, said “the people spoke” with passage of the legislation.
“Polls were done, people spoke from across the state, across party lines, that they wanted a repeal on a grocery tax,” she said. “And of course, we didn’t get the full 4% upfront, but this is a start.”
The most recent version passed the Senate with virtually no opposition. Sen. Rodger Smitherman, D-Birmingham, who voted for the bill, did express some wariness about the local tax cap.
“When you tell my city, or any of our cities … that because they want to do a humanitarian mission, on their own, and they want to reduce their portion of the tax, say 6 cents, then 4 cents, then they realize that they are in a financial crisis by doing that, revenues are gone, you are telling them that they can’t raise it back up to the cap that they got,” he said.
Alabama Arise has been advocating for the grocery tax for years, calling for it once again even before the session began because of the impact that it has had on working families. It was one of the few bills that conservatives and liberal leaning groups could agree on.
“This grocery tax reduction will benefit every Alabamian,” said Robyn Hyden, executive director of Alabama Arise, in a statement Thursday. And it is an important step toward righting the wrongs of our state’s upside-down tax system, which forces Alabamians with low and moderate incomes to pay a higher share of their incomes in state and local taxes than the wealthiest households.”
Alander Rocha contributed to this report. Updated at 4:24 p.m. with comments from Reps. Danny Garrett, R-Trussville and Penni McClammy, D-Montgomery.
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