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Grocery sales tax talks continue in State House

Another penny isn’t coming off the state’s sales tax on groceries in 2024, but some legislative leaders are hopeful it will within the next few years. Meanwhile, they’re studying the impact of the one percentage point reduction that took effect last fall.

The Joint Study Commission on Grocery Taxation meets at 3 p.m. today at the State House.

“We are looking forward to the next (one percentage point) coming off as soon as possible,” said Sen. Andrew Jones, R-Centre, who sponsored last year’s legislation to reduce the state’s sales tax on most grocery items. “We hope to get a better understanding of growth trends in the Education Trust Fund, as well as gain insights into the impact of the grocery tax cut.”

The Legislature and Gov. Kay Ivey last year approved legislation to reduce the sales tax on most store-bought food items from 4% to 3%. The law also said the tax would be reduced to 2% in September 2024 “if the average of estimated growth” for total ETF revenues for fiscal year 2025 is at least 3.5% higher than fiscal 2024.

State budget leaders last week said growth within the ETF is expected to be less than 2% in 2025. The tax deduction can happen in a future year when the 3.5% increase is reached.

So far in fiscal 2024, tax revenues into the ETF are down .69% compared to the same time in 2023, a decrease of about $24.1 million. Revenue from sales tax receipts has decreased by more than 4%, or about $33 million in the first four months of the fiscal year.

When lawmakers approved the 1% reduction, the fiscal impact on the ETF was estimated at $150 million per year.

“The price tag of the grocery tax cut was a best-guess estimate, and at the time of its passage, it was difficult to gauge how those savings for families would flow back through the economy,” Jones said. “One thing we’re looking for is how those tax savings are being utilized, and whether we are making up a portion of the revenue hit to the ETF because folks are spending those savings on other purchases.” 

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