Alabama House approves bill that would reduce state tax on food

The Alabama House Thursday approved a bill that could cut the state grocery tax in half over the next few years.

HB 479, sponsored by the House Ways and Means Education chair Danny Garrett, R-Trussville, passed 103-0. It goes to the Senate.

The legislation would reduce the state tax rate on food covered by the Supplemental Nutrition Assistance Program (SNAP) to 3% on Sept. 1, 2023. The bill would then reduce the grocery sales to 2% on Sept. 1, 2025, but only if the revenue to the Education Trust Fund that year is at least 2% higher than the previous fiscal year.

“We get to the 2% in 1% increments in a shorter period of time,” Garrett said. “Rather than looking back to the prior year budget, you’re looking forward to the following year to see if there’s been 2% growth in revenue.”

Alabama is one of just 13 states that taxes groceries, and one of only three states that taxes groceries fully. Alabamians can pay up to 10% on grocery bills when local sales taxes are added in. Critics have long argued the tax hurts the poor and adds to food insecurity.

Reducing the state tax to 3% would cut the yearly food taxes of a family paying $500 a month in groceries and paying a 10% tax from $600 a year to $540 a year. At 2%, it would fall to $480 a year.

The Legislative Fiscal Office (LFO) estimates that reducing the state grocery tax to 2% would cost the ETF $318 million a year, once fully implemented.

“We’ve run the modeling out with the LFO and based on the conservative budgeting we’ve had in the past, based on the budget we just passed and what where we expect to be at this time next year, based on the reserves we have, based on the new savings account we will have, this is a tax cut that we’re confident we can sustain without an impact to the ETF,” Garrett said.

The legislation would freeze local grocery taxes at their current rates, which some House Republicans disagreed with. Under an amendment approved by the committee, cities and counties could cut their food taxes and later raise them to the frozen rate but could not go above it.

Rep. Ronald Bolton, R-Northport, agreed that some local governments may try to backfill the tax rate if the legislature reduced the state’s grocery tax and that there should be a way to stop that, but he didn’t think it was in the local government’s best interest to have the legislature to tell them they can “never, ever increase the grocery or the food tax.”

“I don’t know how you do this – if we’re going to reduce the grocery tax, we have to reduce it, and the problem has always been that we reduced taxes that’ve been picked up by the locals,” Garrett said in response to Bolton’s concerns.

Rep. David Faulkner, R-Mountain Brook, agreed with Bolton, said that while he supports reducing the grocery tax, he “doesn’t want to stop cities from losing that ability to provide services to citizens of Alabama for the rest of their entire existence.

Both Bolton and Faulker introduced amendments to address their concerns. Bolton’s amendment would have put a time limit on the local sales and use tax freeze. Faulkner’s amendment set that limit for five years, then if residents wanted to raise the tax, it would have needed to be voted on by referendum. Garrett tabled Bolton’s amendment, and Faulker withdrew his.

Democrats supported the legislation, and noted that former Rep. John Knight, D-Montgomery, had fought to eliminate the tax for years.

Rep. Napoleon Bracy, D-Prichard, said in support of the bill that sometimes they get so caught up in what is best for the economy that lawmakers often forget about the “personal economy.”

“Rarely do we ever just look at the people and see what’s best for the people. But this time, we did. I think it is a slow-moving snowball. But it’s definitely a step in the right direction,” Bracy said.

Rep. Laura Hall, D-Huntsville, said that in over 25 years that she has been a lawmaker it brings a smile to her face to see the House pass the legislation.

“The fact that we’re even having a compensation, that looks like we’re even going to phase it in, makes me feel good,” Hall said.