Will Alabama eliminate sales tax on groceries in 2020?

Will Alabama eliminate sales tax on groceries in 2020?

Several lawmakers in Alabama are seeking to eliminate the state sales tax on groceries.

Alabama State Senator Andrew Jones says the grocery tax is “a regressive tax which penalizes hardworking families” and “disproportionately affects lower income Alabamians.” His solution, Senate Bill 144, would entirely exempt sales of food from state sales and use tax starting October 1, 2020. Local sales and use taxes on groceries wouldn’t change.

To make up for the reduction in revenue, SB 144 would amend the state income tax. This would require a constitutional amendment: approval by 3/5ths of both the House and Senate, and a popular vote.

House Bill 131 takes a more gradual approach, phasing out the state sales and use tax on groceries over the next 20 years. The state rate would decrease from 4.0% to 3.8% on September 1, 2021, and continue to drop annually by 0.2%. Effective September 1, 2040, groceries would be fully exempt from Alabama state sales tax, though not local sales and use taxes.

HB 131 may be the easier pill to swallow. For starters, it eases in the exemption. It also doesn’t amend the state income tax or require a constitutional amendment.

But both bills face an uphill battle in the Legislature because the state sales tax on groceries generates approximately $400 million annually for the state’s education budget.

Alabama one of just three states to fully tax sales of groceries

Alabama is one of only three states (Mississippi and South Dakota are the other two) that tax food for home consumption at the full rate. In Alabama, that can be as high as 11%.

Four other states — Hawaii, Idaho, Kansas, and Oklahoma — offset the full rate of sales tax with credits or rebates for groceries. The remaining states exempt groceries or tax them at a reduced rate.

No matter what the rate, automating sales tax compliance facilitates the collection and remittance of sales tax in all states. Learn more at avalara.com.

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