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Alabama lawmakers approve cut in state's 4% grocery tax

The bill now goes to Alabama Gov. Kay Ivey. Alabama is one of only three states that tax groceries at the same rate as other purchases.
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Retail, credit card payment service. Customer paying for order of cheese in grocery shop.

MONTGOMERY, Ala. — Alabama families could soon pay less at the grocery store after lawmakers Thursday voted to remove half of the 4% state sales tax on food.

Lawmakers unanimously gave final approval to the long-sought legislation. It would gradually remove half of the state’s 4% sales tax on food by Sept. 1, 2024, provided there is enough revenue growth to offset the loss. The bill now goes to Alabama Gov. Kay Ivey

Alabama is one of only three states that tax groceries at the same rate as other purchases.

“This is going be great for working Alabamians. Folks who are struggling to put food on the table," Republican Sen. Andrew Jones, sponsor of the Senate version of the bill, said after Senate passage.

The measure had been proposed unsuccessfully in Montgomery for decades. But it gained bipartisan support as the state sees a record budget surplus — partly driven by rising prices leading to higher sales tax collections — and consumer frustration over the cost of food.

The bill would reduce the 4% tax on food to 3% on Sept. 1. It would drop to 2% on Sept. 1, 2024, provided that tax collections to the Education Trust Fund are projected to rise more than enough to offset the loss.

Robyn Hyden, executive director of Alabama Arise, an advocacy group for low-income families, said, reducing the state sales tax on groceries "will provide meaningful help for Alabamians who struggle to make ends meet.”

“This grocery tax reduction will benefit every Alabamian. And it is an important step toward righting the wrongs of our state’s upside-down tax system, which forces Alabamians with low and moderate incomes to pay a higher share of their incomes in state and local taxes than the wealthiest households," Hyden said.

The Senate on Thursday quickened the pace of the tax removal but also increased the required revenue growth from 2% to 3.5% to safeguard against a loss in education funding. The House accepted the change on Thursday afternoon.

The current 4% tax provides more than $600 million annually to the state for education funding. Cutting it in half would cost the education budget an estimated $318 million annually.

“I think there’s some concern among members we’re heading into potentially perilous economic times... so we wanted to make sure that we have enough growth in the ETF (Education Trust Fund) to sustain the drawdown in the grocery tax," Jones said.

If the growth requirement isn't met to drop the tax to 2% in 2024, it would be reduced in the next year that the growth requirement is satisfied.

Alabama lawmakers proposed multiple tax cuts this year. But the food tax proposal drew widespread support with nearly all 140 legislators signing on as sponsors.

The legislation also would prevent local governments from raising taxes on groceries after the bill is signed into law.

Jones said lawmakers are creating a study commission to explore the possibility of eventually removing all of the tax.

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