The Alabama House of Representatives is slated to tackle a handful of tax cuts when it returns from a week-long hiatus from the state house after sailing through committee on the final meeting day last week.
The House Ways and Means Education Committee advanced the four-bill package last week, the day after they were filed. Lawmakers are not meeting at the capitol this week due to a "constituent work week." However, the tax cut package has already been scheduled for House votes on the first day of the legislative week when session resumes.
Education Trust Fund (ETF) budget chairman State Rep. Danny Garrett (R-Trussville) sponsors all bills in the package.
First up is House Bill 386 (HB386), which increases the state's grocery tax cut by an additional 1%, bringing the total reduction to 2% since 2023. Lawmakers reduced the 4% sales tax rate on groceries by 1% in September 2023. However, an expected additional cut did not come the following year.
The fiscal note on HB386 estimates a $121.6 million to the ETF and a $281,750 reduction to the state's General Fund, bringing the total estimated loss to $121.9 million.
In committee, the bill received a technical amendment, leaving the substance unchanged. It passed unanimously.
Related to the grocery tax, House Bill 387 (HB387) would revise the law preventing local governments from lowering their own grocery tax.
The definition of "food" for state sales and use taxes applies to county and municipal taxes. Municipal and county governments may reduce their sales and use tax rate on food by 25% in any year they meet specific growth requirements.
HB387 would remove the 25% growth requirement, allowing local governments to cut grocery taxes at their discretion. The bill cleared the committee unamended with another unanimous vote.
House Bill 388 (HB388) would double the state's tax exemption for defined certain retirement plan withdrawals.
Under current law, the first $6,000 of taxable retirement income for individuals who are 65 or older is exempt from Alabama income taxes. This bill would increase the exemption amount to $12,000. The bill's fiscal note estimates a $44.8 million decrease in income tax receipts to ETF.
"I just really wanted to say something positive," said State Rep. Terri Collins (R-Decatur). "I thought this was an excellent bill, and I really appreciate [Garrett] thinking about it. I think it makes a big difference, especially for our retirees who are not on a defined benefit plan."
HB388 likewise cleared the committee without objection or emendation.
House Bill 389 (HB389) would increase the range of optional standard income tax deductions.
Currently, taxpayers are allowed an optional standard deduction, as well as dependent exemptions in computing income subject to the tax. This bill would increase the optional standard deduction and expand the adjusted gross income range allowable for the maximum optional standard deduction. It would also cause the dependent exemption to raise the threshold at which the state imposes individual income taxes.
A complete list of the adjusted deduction adjustments can be found here, but the bill's fiscal note claims the ETF would take a $23.8 million annual hit after $18.9 million in fiscal year 2026.
HB389 also passed unamended and unopposed.
House Rules chairman State Rep. Joe Lovvorn (R-Auburn) praised the bill and Garrett's work in bringing it.
"Mr. Chairman, I just want to thank you," Lovvorn said. "This is one of the best agendas for this committee that I've seen. You're a good steward of the taxpayer's dollars, and, on top of that, you always look for commonsense steps and ways that we can lower the tax burden on people in our state."
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