Further reductions in Alabama grocery tax might face political headwinds

A group that helped lead efforts to reduce Alabama’s grocery tax this fall plans to renew the fight in the next legislative session.

But it may be harder to achieve this time.

Alabama Arise, a nonprofit working on issues for low income people, put elimination of the state’s 3% tax on groceries on its priority list for the 2024 legislative session, which begins next February.

“If you look at budget and tax priorities, there is a big focus on fairness,” said Robyn Hyden, executive director of Alabama Arise. ‘“Hey, we know that we have a lot of goals of things that we would like to see funded in our state. We would like to have an equitable education system. We would like to fund Medicaid expansion. But we don’t think it is worth taxing poor people for their groceries to fund basic state services.’ That fairness comes through a lot.”

But with proceeds from the tax going into the Education Trust Fund budget, legislators have often struggled to reduce the levy.

“We will not further reduce it for this session,” said House Ways and Means Education Committee Danny Garrett, R-Trussville. “We are possibly going to reduce the entire tax over time, but at this point, there is one cent that went to effect in September, and another one cent will go into effect when revenue grows 3.5%. That would be 50% of the grocery tax. That is $150 million out of the budget.”

Alabama is one of 13 states with a tax on groceries, and until September was one of three that fully taxed food. With local levies added, the tax could add an extra 10% to the price of groceries. Other states impose tax breaks to help alleviate its burden for some individuals, especially lower-income individuals.

The tax has been in place since 1939, but efforts to repeal it usually stalled amid questions of its impact on the state education budget. The issue was not on legislators’ radar screen when the session began in March. But a combined push by Alabama Arise and the Alabama Policy Institute, a conservative organization, as well as interest in the issue from new lawmakers, led to the first changes in the tax in over eight decades.

Legislators last spring approved a 1% reduction in the state’s portion of the grocery tax which went into effect in September. If revenues in the Education Trust Fund grow 3.5% year over year, the state portion of the tax will fall to 2%.

“I am really proud and grateful for the legislators who made a stand on that,” Hyden said.

The bill also froze local grocery tax rates at their current levels.

“I think we are making progress, again, with the relief that we have seen, that was passed with the grocery tax,” said Rev. Clyde W. Jones, Jr., associate minister at Macedonia Missionary Baptist Church in Daphne and president-elect of the Arise board. “To me, that is inspiring, motivating, that we see some progress.”

Having secured a foothold on the issue, Arise wants to seize on its momentum and push for future reductions with the eventual goal of completely doing away with the revenue source.

But a complete elimination of the grocery tax would likely mean finding money toreplace the revenue that will be lost. Prior to the earlier cut, the tax brought in more than $600 million to the education budget.

Hyden estimates that it will cost another $300 million in revenues to fulfill the goal of eliminating the grocery tax. Without a surplus in the current ETF, Hyden said, lawmakers would not have even considered reducing the grocery sales tax.

“Most of our taxes come from income and sales taxes in the Education Trust Fund,” Garrett said. “To change things would require constitutional amendments and would be a major overhaul of tax policy in the state.”

Some advocates, including Arise, are calling for the elimination of a constitutional amendment that allows Alabama taxpayers to write federal tax payment off their state income taxes. That deduction, which overwhelmingly benefits the wealthiest Alabama residents, could be the alternative revenue source the state needs to finally eliminate the grocery tax.

There have been efforts dating back decades to repeal the tax, and some continue to call for its repeal.

“The lieutenant governor said publicly that he would like to eventually eliminate all of it, but there is no timetable for that,” Garrett said.

That reluctance makes Arise’s efforts that much more difficult.

“I know that a bipartisan study commission should be launching eventually this fall,” Hyden said. “Our goal would be that we are at that table, or at least advocating to lawmakers at that table, to talk about sustainable funding sources. To continue to shift the tax cost away from low-wealth and working-class families, and toward those in the state who are not paying their fair share.”

Arise also plans to work on the death penalty and criminal justice reform; voting rights and voter restoration, and transportation and maternal and infant health in the coming session.