After decades of advocacy on behalf of all citizens by the Alabama Policy Institute (API), Alabama shoppers will start to see relief from near record high food prices beginning this Friday, September 1, 2023, when the state grocery tax cut begins to take effect.
Through the end of August, groceries have been taxed at the full state sales tax rate of 4%. Currently, Mississippi and South Dakota are the only other states that fully tax groceries.
The lowering of Alabama’s grocery tax comes after the passage of House Bill 479 by Rep. Danny Garrett (R-Trussville) during the 2023 Regular Legislative Session, which was unanimously approved by both the Alabama House and Senate. 98 House members cosponsored the bill. Every single State Senator cosponsored the Senate version of the bill, carried by Andrew Jones (R-Centre).
Under the provisions of House Bill 479, a 2% total cut in the grocery tax will be implemented as soon as next year. The first 1% of the cut will go into effect on Friday, with the second 1% being eliminated on September 1, 2024, if Education Trust Fund (ETF) revenues are projected to grow by at least 3.5% in the following year. If those growth projections are not met, the second 1% cut would be delayed until the ETF growth requirement is satisfied.
In 2021 and 2022 the ETF saw historic average annual revenue growth of 16.1%. Over the past five years, average ETF growth has been more than 10.5%, while over the past decade growth averaged approximately 6.4% per year. While 3.5% revenue growth is not guaranteed, it is an attainable target.
Though a 2% sales tax cut may not sound like a large impact to the casual observer, it is real money and the largest tax cut in state history. The Legislative Services Agency estimates that in 2024 the first phase of the tax cut will save Alabamians $152 million. Once fully implemented, eliminating half of the grocery tax will save citizens $318 million per year.
To put that into practical terms, data from the U.S. Department of Agriculture estimates that a family of four following the USDA’s lowest cost food plan spent an average of $975.80 per month on groceries in July 2023. A 2% grocery tax cut equates to a minimum of $234 in annual savings for Alabama families. This is not a temporary tax cut with an expiration date, it will be permanent unless the Legislature amends the 2023 law. Those savings will compound over the years.
API was proud to be an integral part of the bipartisan coalition led by Lt. Governor Will Ainsworth and other lawmakers that understood the need to reduce the grocery tax to provide much needed permanent tax relief to all Alabamians. While there remains more work to be done on reducing the overall tax burden on citizens, eliminating half of the grocery tax was an important first step towards achieving that goal.