Under Act No. 2023-554, Alabama will gradually half the state sales tax on food.
The Alabama House concurred June 1 with Senate changes to the legislation by Rep. Danny Garrett, R-Trussville, and Sen. Andrew Jones, R-Centre, and the governor signed the new tax structure into law June 15.
The revised tax uses the same definition of food as the federal Supplemental Nutrition Assistance Program, or SNAP. SNAP foods include fruits, vegetables, meat, poultry, fish, dairy, breads, cereals, snack foods, non-alcoholic beverages and the seeds and plants that produce food.
On Sept. 1, the state’s 4% sales tax rate on those foods drops to 3%. “The September 2023 sales and use tax returns due in October will have a separate column where the qualified food items must be reported,” the Alabama Revenue Department said a late July notice to sellers. Sellers with questions about the tax reduction should call the department’s Sales Tax Administration Section at 334-242-1490. A department spokesman said “most” retailers will separate items taxed with the statewide 4% rate and items taxed at the food rate of 3%, which means two different tax lines on receipts.
The rate drops to 2% on Sept. 1, 2024, IF education revenue is projected to grow by 3.5% or more in the 2025 fiscal year. “Rather than looking back to prior year,” Garrett said, “we will look forward to the next year.” If the state’s education revenue is not growing by at least 3.5%, the second 1% reduction will take place in the next fiscal year when that rate is achieved.
Removing 2% of the 4% state tax on groceries will save Alabama consumers slightly more than $318 million.
As of Thursday, June 15, county and city governments cannot raise the sales tax on food. Under the legislation, local governments can reduce their food sales tax rate in 25% increments in any year when their local revenue exceeds 2% over the previous year. Reduction ordinances can take effect Oct. 1 following their adoption as long as Oct. 1 is at least 60 days after adoption. Local governments that reduce their food sales tax can raise it back to the level it was June 15.
For three decades, legislation has been introduced in the Alabama Legislature to remove the state tax on groceries. The issue gained momentum this year because of an almost $3 billion surplus in the state’s current education’s budget. The 2% reduction in the state sales tax on food is not attached to a revenue measure to replace those sales taxes.
Commission to study how to eliminate tax on groceries
On June 2, a joint resolution creating the Joint Study Commission on Grocery Taxation became law without the governor’s signature. Under Act No. 2023-400, the 11-member commission is to meet at least annually, starting by Dec. 1, and make its final report and recommendation by Nov. 1, 2026, “for any proposed legislation to eliminate the sales and use tax on groceries.” Update:
>> UPDATE #2: 2024 reduction unlikely; commission continues to seek a way to move forward
>> UPDATE #1: Based on Nov. 14, 2023, meeting, the single-cent reduction in sales tax in its first month resulted in an $8.46 million monthly loss to the state’s Education Trust Fund
Other proposals fail to gain traction
Several other bills to reduce or eliminate the sales tax on food did not make it through the 2023 legislative process:
- HB250 by Rep. Danny Garrett, R-Trussville/SB177 by Sen. Arthur Orr, R-Decatur, would have gradually phased out the state’s 4-cent sales tax on foods covered by the federal Special Supplemental Nutrition Program for Women Infants and Children, known as WIC. The legislation defined food as the items covered under WIC, which includes basics like milk, eggs, cheese, fruits, vegetables, whole grain bread, tortillas or pasta, certain cereals and infant formula.
- SB234 by Sen. Merika Coleman, D-Birmingham, and six other Democratic co-sponsors, was a constitutional amendment with a revenue-raising measure attached. The amendment would have no longer allowed Alabamians to deduct federal income taxes paid from their state income taxes starting with the 2024 tax year and exempt certain foods from the state’s 4% sales tax starting Jan. 1, 2024. The legislation would not have affected city and county sales taxes on food.
- HB15 by Rep. Chris England, D-Tuscaloosa, would have authorized city councils to reduce or eliminate local sales and use tax on food.
- HB396 by Rep. Arnold Mooney, R-Birmingham, would have frozen city and counties sales tax rates on SNAP foods on Jan. 1, 2024. The bill would have allowed cities and counties to reduce the local sales tax on SNAP foods after that date, but they could not raise that tax.
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Originally posted 7 a.m. June 16, 2023