Don’t expect another Alabama grocery tax cut as sales tax receipts are ‘flattening out’

Alabamians will have to wait for a further reduction in the state’s grocery tax.

Kirk Fulford, deputy director of the Fiscal Division of the Legislative Services Agency, told members of the Joint Study Commission on Grocery Taxation Monday that revenues to the Education Trust Fund budget will grow less than 2%, below the 3.5% that would trigger a 1% cut in the tax under a law that passed last year.

“Sales tax receipts were flattening out,” Fulford said. “They have experienced, like everything else in the Education Trust Fund, exponential growth over the period of 2021–2022.”

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He added that the ETF increased by almost 15% in 2021 and another 8% in 2022, significantly higher than what the fund is accustomed to collecting.

Alabama is one of 13 states that taxes groceries, and until September, it was one of three states that fully taxed groceries. The 4% state tax, combined with local levies, added up to 10% to people’s food bills. Other states allow for tax breaks to help ease the burden on lower-income households.

The tax has been in place since 1939. Lawmakers have tried to reduce the tax burden multiple times, but efforts stalled out of concerns about how it could impact funding for education.

But last year’s record ETF revenues, combined with a push from two organizations—the left-leaning Alabama Arise and the right-leaning Alabama Policy Institute—spurred lawmakers and attempts to reduce Alabama’s sales tax on groceries drew bipartisan support among lawmakers and got a renewed look.

The bill passed by the Legislature cut the state levy on groceries from 4% to 3% last September. An additional 1% would follow if revenues in the ETF grew by 3.5%. The bill also froze local grocery taxes at their current rates.

Fulford said Monday the reduction, first projected to cost the ETF $152 million, had come in between $125 million and $130 million.

Some lawmakers are skeptical of additional legislation for this year’s session to further reduce the tax or provide more sales tax relief for groceries. House Ways and Means Education Committee Chair Danny Garrett, R-Trussville, said during an interview in October that he did not expect further reductions in the near future.

“The conditions for lowering the rate again in October have not been met, and so the rate will not go down in 2025,” Fulford said. “But you still have the opportunity because the language didn’t say that provision went away at the end of this year.”

If revenue for the ETF increases beyond the threshold in the future, the additional percent reduction can be implemented.

Akiesha Anderson, policy and advocacy director for Alabama Arise, said the group would continue to push for grocery tax reductions.

“Everyone must eat no matter how much they earn, so sales taxes on groceries disproportionately fall on people and families with lower incomes, who must spend a larger share of that income on food to be consumed at home than those with higher incomes,” she said.

According to a presentation Anderson made to lawmakers, Alabama is the sixth poorest state in the country, with more than 800,000 people, including 250,000 children, who live below the poverty line. The state population is about 5.1 million, according to the U.S. Census.

Legislators who are part of the committee have said they will wait, gauging what their colleagues are willing to do regarding the grocery tax.

“We really want to see what the lay of the land was and what we are looking at,” said Sen. Andrew Jones, R-Centre. “Obviously, when we knew we had the bill, we wanted to get several bites at the apple so that we could get this in. It is important to constituents and to consumers that inflation is at an all-time high, especially on groceries, so anything we can do to make this happen sooner rather than later, we want to make sure we can do that.”