Part of the Food Policy Snapshot Series
Policy name: Alabama HB 479
Overview: Alabama’s grocery tax rate will drop from 4 percent to 3 percent in September 2023.
Location: Alabama
Population: 5.1 million
Food policy category: Food services, food supply and distribution, food security
Program goals: To make food more affordable.
How it works: Starting on September 1, Alabama’s state sales tax rate on groceries will be reduced from 4 percent to 3 percent. The sales tax reduction does not apply to prepared foods or to personal hygiene or cleaning items sold in grocery stores.
In cities and counties where the overall local sales tax is greater than 4 percent, the grocery sales tax will be reduced by one percent. For example, in Mobile and Montgomery, where the local sales tax is 10 percent, the grocery tax will be reduced to 9 percent.
On September 1, 2024, the grocery tax will be reduced again to 2 percent so long as contributions to the Alabama Education Trust Fund (ETF) are projected to rise by 3.5 percent. If the growth rate does not increase enough, the additional one percent tax reduction will not occur until the next year when contributions do reach 3.5 percent.
Progress to date: Grocery tax cut legislation has been proposed in Alabama since the early 1990s but never passed, partly due to concerns about reduced contributions to the ETF. The 4 percent grocery tax currently contributes around $600 million to the ETF. The legislation finally passed this year because the ETF’s surplus is the highest it has ever been, and the state can, therefore, afford to reduce the tax.
Why it is important: Fifteen percent of Alabama residents participated in SNAP in 2022, compared to 12 percent nationally, and 17 percent of adults and 23 percent of children in Alabama experience food insecurity.
Alabama is one of 13 states that have any tax at all on groceries, and one of three – along with Mississippi and South Dakota – that tax groceries at the full state sales tax rate. When the state tax is combined with local taxes, residents of some cities and counties are paying a total of 10 percent tax on groceries. Furthermore, as a result of inflation, food prices across the U.S. have increased by 6.7 percent in the past year. A reduction in the grocery tax rate will help to make food more affordable for all Alabama residents.
Program/Policy initiated: Governor Ivey signed the bill into law on June 15, 2023, and the policy will go into effect on September 1.
Point of contact: N/A
Similar practices: Virginia has also passed legislation reducing the state’s grocery tax. Kansas will completely eliminate its grocery tax by 2025. Tennessee will have a three-month grocery tax holiday from August 1 through October 31, 2023.
Evaluation: A formal evaluation measuring the effects of the legislation has not yet been conducted. However, the bill passed in both the Alabama House and Senate without opposition.
Learn more:
- Alabama Reducing Its Grocery Tax (Grocery Dive)
- As Food Prices Soar, Some States Consider Cutting Taxes on Groceries. But That May Not Be the Best Approach, Research Finds (CNBC)
- Cost of Groceries Higher in Alabama Than Other States (WBRC 6)
- Gov. Kay Ivey Signs Alabama Grocery Tax Cut Into Law (Montgomery Advertiser)
- Putting Grocery Food Taxes on the Table: Evidence for Food Security Policy-Makers (Food Policy)
- States Are Looking To Cut Their Grocery Taxes. Here’s What That Means for Grocers. (Grocery Dive)
References:
- After 31 Years, Why Is There Momentum for Alabama Republicans to Cut the Grocery Tax? (AL.com)
- After Decades of Attempts, Major Alabama Bill to Cut State’s 4% Grocery Tax Wins Final Passage (AP News)
- Alabama Cuts Grocery Tax to 3%: When Does Cut Start? How Much Will I Save? What Foods Are Included? (AL.com)
- Alabama Gov. Kay Ivey Signs Grocery Tax Cut Bill (AL.com)
- Alabama House Bill 479 (LegiScan)
- A Closer Look at Who Benefits from SNAP: State-by-State Fact Sheets (Center on Budget and Policy Priorities)
- Food Access Resources (Alabama Public Health)
- Food Price Outlook, 2023 (Economic Research Service)
- Governor Laura Kelly Signs “Axe the Food Tax” Bill, Providing Relief for Kansans (Kansas Office of the Governor)
- Gov. Ivey Signs Grocery Tax Reduction Into Law; Tax to Drop By 1% In September (WVTM 13)
- Gov. Lee Signs Single Largest Tax Cut in Tennessee History into Law (Tennessee Office of the Governor)
- Grocery Tax Reduced to 1% Beginning Jan. 1, 2023 (Virginia Department of Taxation)
- Major Alabama Bill Cutting Sales Tax on Groceries Wins Final Passage (Fox News)
- The Perfect Opportunity to Repeal the Grocery Tax Is Before Us, but We Must Take Action Now (Office of the Lieutenant Governor of the State of Alabama)
- States Put Grocery Taxes on Ice (Stateline)
