By MADDISON BOOTH, Alabama Daily News
MONTGOMERY, Ala. – A bipartisan mix of lawmakers is hoping this is the year Alabama stops taxing groceries.
The idea has been debated in the State House for more than 15 years, with the biggest stumbling block being whether and how to replace the more than $500 million in revenue loss to the education budget.
A new plan this year would let voters decide.
Rep. Mike Holmes, R-Wetumpka, is sponsoring two related proposals: one that would eliminate state sales tax on food, period, and another that would allow voters to decide on a way to make up that revenue through limiting tax deductions.
House Bill 174 eliminates state sales tax on groceries and does not offer a way to make up that revenue loss.
“There will not be a tax increase or a tax decrease,” Rep Mike Holmes, R-Wetumpka, said. “(The lost revenue) will not be made up.”
Holmes is also sponsoring House Bill 173, a constitutional amendment that would require approval by voters to nix the grocery tax and replace the revenue by limiting the amount of federal income taxes Alabamians can deduct from the state income tax filings. The proposal would set a maximum of $4,000 for individuals and $8,000 for couples. Sen. Andrew Jones, R-Centre, has the companion bill, Senate Bill 43.
That change would equate to a tax cut for low- and middle-income Alabamians and a slight tax increase on the state’s highest-income taxpayers, according to the advocacy group Alabama Arise. They are supportive of the constitutional amendment, but not the elimination-only bill because of the revenue loss to education.
All three bills are awaiting consideration by their respective education budget committees. A fiscal note on a similar bill from the 2020 legislative session estimated that eliminating this grocery tax would result in a loss of $514 million to the Education Trust Fund.
Sen. Arthur Orr, R-Decatur, chairs the Senate education committee and said that eliminating the grocery tax will definitely be considered this session. He said that, which the state has record ETF revenue, there are multiple proposed demands for that money in 2023.
“The fiscal note on the grocery tax bill is substantial, and we’ve got other bills floating around like the parent’s choice bill also with large fiscal notes,” Sen. Arthur Orr, R-Decatur said. “We have to prioritize.”
Only two other states in the U.S., Mississippi and South Dakota, also do not provide tax breaks on groceries, according to the Center on Budget and Policy Priorities.
The Institute on Taxation and Economic Policy says Alabama is among only six states that allow taxpayers to deduct what they pay in federal income tax from their state taxes, known as an FIT.
The institute estimated that a cap of FIT deductions of $4,000 for those filing single and $8,000 for those married filing jointly, the cap proposed in HB173 and SB43, would generate $595 million to replace the lost revenue in the Education Trust Fund, while providing a tax cut to all Alabamians except those whose income is in the state’s top 5%. Those citizens would pay more in taxes.
“Most Alabamians don’t itemize their state tax returns and, therefore, don’t really benefit from the FIT deduction in the first place,” Alabama Arise Policy Analyst Carol Grundlanch said. “And because federal taxes are progressive (the more you earn, the more you pay), the FIT deduction dramatically benefits the top 1% of income earners in the state.”
A 2019 study titled “Map the Meal Gap,” by the non-profit organization Feeding America showed that Alabama has a food insecurity rate of 16.1%, compared to the national rate of 10.9%. That means the percentage of the population without regular access to enough food to lead a healthy life.
“I think (House Bill 174) is a first step in us looking at not food insecurity but food desserts…places across Alabama where healthy foods are not located,” Rep. Barbara Drummond, D-Mobile said. A co-sponsor on the bill, she said she hopes ending the state tax on groceries will allow Alabamians to “make healthier choices.”
Drummond said the biggest debate will be over whether and how to replenish the lost dollars.
Co-sponsor Rep. Ginny Shaver, R-Leesburg, said that though similar bills have failed many times, she hopes that this will be the year that the legislature finally addresses this issue, especially given inflation’s impact on grocery prices.
Rep. K.L. Brown, R-Jacksonville, is also a co-sponsor on HB174.
“Right now with both budgets being in pretty good shape, the argument can be made that…if we’re going to do it now’s the time,” Brown said.
Brown also shared concerns from local mayors that citizens will expect local governments to eliminate tax on groceries as well, which Brown said most cannot afford to do. None of the current bills require local municipalities to stop taxing groceries.
Rep. Andrew Sorrell, R-Muscle Shoals, favors cutting the tax on groceries without replacing the revenue.
“The idea is to cut taxes, not to do a tax swap,” Sorrell said. He said that Education Trust Fund revenue saw a 16% increase last year and a significant increase the year before. He said that is a great reason to pass HB174 now without worrying about taking away from that budget.
Alabama Daily News reporter Heather Gann contributed to this report.