GROCERY TAX

After decades of advocacy on behalf of all citizens by the Alabama Policy Institute (API), on Friday, September 1, 2023, the first 1% of a 2% total grocery sales tax cut took effect. The second phase of that tax cut was fully implemented in 2025, reducing the state grocery tax rate from 4% to 2%.

The lowering of Alabama’s grocery tax came 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 co-sponsored the bill. Every single State Senator co-sponsored the Senate version of the bill, carried by Andrew Jones (R-Centre).

Under the provisions of the law, a 2% total cut in the grocery tax began in late 2023. The first 1% of the cut went into effect on September 1, 2023. The second 1% could have gone into effect as soon as September 1, 2024, however as required by law, Education Trust Fund (ETF) revenues were not projected to grow by at least 3.5% in 2025 and the next 1% cut did not go into effect.

This changed during the 2025 regular session when Representative Garrett introduced House Bill 386, which was later enacted and signed by Governor Kay Ivey. Under the provisions of the bill, the second 1% cut in the grocery sales tax rate went into effect on September 1, 2025, without the requirement that ETF growth metrics be met. The bill also removed existing barriers to make it easier for local jurisdictions to reduce their share of the sales tax on groceries. In total the additional 1% cut is expected to save taxpayers more than $121 million per year.

Though a 2% sales tax cut may not sound like a large impact to the casual observer, it is real money and the largest total tax cut in state history. At the time of House Bill 479’s passage, the Legislative Services Agency estimated that in fiscal year 2024 the first phase of the tax cut would save Alabamians $152 million. The second phase of the cut implemented by House Bill 386 is estimated to save taxpayers an additional $121.9 million annually. Combined, the full 2% reduction is estimated to save Alabama taxpayers more than $270 million annually.

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 $983.80 per month on groceries in November 2024. A 2% grocery tax cut equates to a minimum of $236 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 current law. Those savings will compound over the years.

While the reduction of the grocery sales tax from 4% to 2% has undoubtedly benefited Alabama families, the price of everyday goods remains near record levels. Alabama is still one of only twelve U.S. states that taxes groceries at all. Families should not be taxed for essential items. Removing the remaining 2% sales tax on groceries would save Alabamians hundreds of millions of additional dollars each year. During the 2026 legislative session, lawmakers also enacted HB527, creating a temporary grocery tax holiday to provide additional short-term relief to consumers. While this measure offers targeted savings, it does not replace the need for permanent repeal of the remaining grocery tax.