More than halfway through the 2023 regular legislative session, strong momentum is building to partially repeal the state’s 4% sales tax on groceries.
Last week, State Sen. Andrew Jones (R-Centre) introduced Senate Bill 257, which could cut the tax in half by 2026. All 35 Alabama senators signed on as cosponsors of the bill and Lt. Gov. Will Ainsworth supports the legislation. Jones vowed that the Senate is “going to work to get it moving as quickly as we can.”
While Gov. Kay Ivey has yet to weigh in on the grocery tax specifically, a spokeswoman said that “she is always open to ideas, discussions and solutions to help the people of our state.”
Alabama remains one of only three states fully taxing food items. Reducing Alabama’s grocery tax by 50% is a step in the right direction and would provide relief from the record high food prices of the last two years. Proponents say the plan would save taxpayers more than $300 million annually once fully implemented.
Alabama’s state government has the largest revenue surplus in state history, more than $3 billion extra taxed from citizens last year. Lawmakers have a unique opportunity to fully eliminate the 4% tax, without imposing higher taxes elsewhere, providing approximately $600 million in permanent tax relief to hard-working Alabamians. The Legislature should continue towards that goal.
Here’s what you need to know about the bill:
Unlike the proposal introduced by State Sen. Arthur Orr (R-Decatur) and State Rep. Danny Garrett (R-Trussville) which would fully repeal the grocery tax, but use the federal Women, Infants, and Children (WIC) program definition of food, Senate Bill 257 uses the Supplemental Nutrition Assistance Program (SNAP) definition. SNAP classifies food much more broadly than WIC, which does not include items such as fresh meat. Jones’ bill would eliminate the tax on almost all grocery items.
In short, more broadly defining food increases the tax savings citizens would realize every time they walk into a store.
Another important element of the bill is that the 2% tax cut would not be immediate. Under Senate Bill 257, the tax would be reduced by 0.5% annually beginning on Sept. 1st, 2023. Subsequent 0.5% reductions would take place on Nov. 1st of each following year until the grocery tax reaches 2%.
The big caveat is that for the grocery tax to be reduced beyond 3.5%, Education Trust Fund (ETF) tax receipts must grow by at least 2% every year. If they do not, the reduction will not take effect. While this is much lower than the 5% growth bar set by the Orr and Garrett bills, 2% growth is not guaranteed.
From 2018-2022, average annual ETF revenue growth was 10.7%. However, from 2013-2017 the ETF grew at an average rate of just over 2%, including two of five years in which growth was less than 0.5%. The Legislative Services Agency projects that ETF revenue will grow by 3.1% in 2024. Beyond that, future reductions in the grocery tax are uncertain.
In other words, it could take longer than three years to cut the grocery tax to 2%.
A potential pitfall for Jones’ repeal effort may be the treatment of local sales tax rates. Under current law, county and municipal governments cannot raise or lower local tax rates without legislative approval in most cases. Jones’ bill would allow local governments to reduce their portion of the grocery tax, but would bar them from increasing the tax.
A hurdle for past grocery tax repeal efforts was the fear that local governments would increase sales taxes, essentially eliminating the savings for Alabamians. Greg Cochran, executive director of the Alabama League of Municipalities, says that he plans “to advocate for amending it to allow municipalities to set and administer their local tax rates.” Sonny Brasfield, head of the Association of County Commissions of Alabama said that counties “aren’t interested in the Legislature addressing a reduction in county revenue, unless they provide us a way to make up that revenue.”
To be clear, the bill in no way compels local governments to reduce their portions of the grocery tax. It simply allows them the option to do so without seeking further legislative approval. Removing this provision from Senate Bill 257 could greatly reduce benefits to Alabamians.
The Alabama Senate should be commended for uniting to address an issue that so many Alabamians care deeply about. Cutting the state grocery tax in half is progress. Lawmakers should build upon that progress and continue to work towards policy solutions that further reduce the tax burden of all citizens.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: [email protected].
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