MONTGOMERY, Ala. – A new proposal in the Alabama Legislature could gradually cut the state’s 4% sales tax on most grocery items to 2%.
Senate Bill 257, filed Thursday by Sen. Andrew Jones, R-Centre, could reduce the tax rate by .5% this fall and every fall until the rate reaches 2%.
“This is going to mean real relief for working Alabamians,” Jones told Alabama Daily News. “The grocery tax is a regressive tax. It negatively impacts working Alabamians.”
The bill does have some fiscal guardrails. The tax reduction would be paused if overall tax revenue growth in the Education Trust Fund, to which sales tax receipts flow, fell below 2%.
“We’re making sure that we’re protecting the Education Trust Fund,” Jones said. When fully implemented, the cut would take about $304 million per year from the ETF, Jones said.
Every member of the Alabama Senate is a co-sponsor on the bill. Whether that would equate to 35 “yes” votes on the Senate floor is still to-be-determined, but Jones said he thinks there is genuine support.
All 35 members of the State Senate agreed to co-sponsor our bill that will cut the state sales tax on groceries in half over the next few years and begin the process of removing it altogether. The $304 million tax cut is the largest in history. The time for action is now. pic.twitter.com/j5FIY1gPIc
— Will Ainsworth (@willainsworthAL) April 27, 2023
While some lawmakers have for years called for an end to the state’s tax on groceries, support — especially among Republicans — has grown in the last year. A combination of rising inflation and grocery prices and record state tax revenue have strengthened arguments for giving people a break on grocery bills. Next year’s proposed education budget is a record $8.7 billion. Meanwhile, there’s an unheard of $2.7 billion revenue surplus to be allocated for the current spending year.
That record revenue has prompted dozens of tax cut and tax incentives bills to be filed in the Legislature this session. Sen. Arthur Orr, R-Decatur, is the chairman of the Senate education budget committee. He’s warned his colleagues they’ll have to prioritize possible cuts and groceries is a big one.
“I see this as a vehicle with broad support to address the grocery tax,” Orr said. “However, my colleagues and I must now have the fortitude not to pass a host of other tax-cut and tax-credit type bills that lobbyists and other special interest groups — which are well intentioned — have put before us.”
Orr on Wednesday declined to advance one of his own smaller tax cut bills in preparation for this grocery bill.
“We can’t do them all,” he said.
Alabama is one of three states that taxes groceries at the same rate as other purchases. The average Alabama family spends $600 a year on the state grocery tax, according to the advocacy group Alabama Arise.
Jones previously suggested a bill to cut the sales tax on groceries completely and replacing the revenue by limiting the amount of federal income taxes Alabamians can deduct from the state income tax filings. He said recent record growth in the ETF makes replacing the revenue less important. And cutting the tax to 2%, rather than nixing it completely, wins the bill more support in the Legislature.
Tax reduction bills must start in the House. Rep. Danny Garrett, R-Trussville, will sponsor the bill there. Garrett told Alabama Daily News said he only recently received the bill and would be working on it over the weekend and then filing it.
The legislative session is now halfway over and must end by mid-June.
The bill uses the federal Supplemental Nutrition Assistance Program definition of food. That covers almost all foods sold in grocery stores, including produce, meats, dairy items, snacks and non-alcoholic beverages. Exempt items would include hot foods. Alcohol, tobacco, pet food and household cleaners would also remain at 4%.
Lt. Gov. Will Ainsworth in recent months has advocated publicly for a reduction in the sales tax on groceries. He’s fully behind Jones’ proposal and is helping garner support.
“I think people are hurting across Alabama; eggs have gone up, meat has gone up, everything has gone up, so this is going to produce a reduction in everybody’s bills,” Ainsworth said Thursday.
“We’re fortunate in our state that the economy’s doing well, income and sales tax are up, and so we’re able to give people a reduction in taxes,” Ainsworth said. “I think this is certainly something I’ve supported because it impacts everyone in our state and gives them a reduction in the grocery tax, and everybody’s got to have groceries, so we’re excited.”
House Minority Leader Bobby Singleton, R-Greensboro, said he favors the phased-in reduction of the tax so that the impact on the ETF won’t be as severe.
Singleton said Democrats would have liked to see the tax revenue replaced, but are supportive of the bill that seems to have Republican backing.
“Is it a perfect bill? No,” Singleton said. “But we’re willing to ride with it if it’s going to give people some relief.”
Alabama Daily News’ Alexander Willis contributed to this report.