A new proposal to reduce the state sales tax on essential grocery items will soon be filed by Sen. Arthur Orr, R-Decatur, chairman of the Senate’s education budget committee.
Orr’s is one of several bills designed to cut or drop the state’s 4 percent sales tax on food expected this legislative session and comes with certain guardrails for the Education Trust Fund, to which sales tax revenue flows.
“I sense, more than any other time in my tenure in the Legislature, a real motivation to address the grocery tax issue,” Orr told Alabama Daily News. “Fortunately, we’re in the best current economic times to take an initial step down that road. And that’s what this bill does.”
If approved by lawmakers, Orr’s bill would drop the sales tax on certain foods to 3 percent on Nov. 1, 2023. Another percent would be shed every November until the tax rate is zero, provided the total growth in the ETF is greater than 2 percent in the previous year, according to a draft bill given to Alabama Daily News.
“It has a pause button if we have slow growth or negative growth (in the ETF),” Orr said.
Orr joins a growing pool of GOP lawmakers supportive of cutting taxes on food. Sen. Andrew Jones, R-Centre, is working on a bill similar to one he sponsored last year — a constitutional amendment that would require approval by voters to nix the grocery tax and replace the revenue by limiting the amount of federal income taxes Alabamians can deduct from the state income tax filings.
That change would equate to a tax cut for low- and middle-income Alabamians and a slight tax increase on the state’s highest-income taxpayers, advocates said last year. Details of the new bill are still being finalized and he’s working with Rep. Patrice McClammy, D-Montgomery, on the bill, Jones said on Monday. But the goal is to help working-class families while also protecting education funding.
“With inflation through the roof, people are paying more now than ever for groceries and it’s a real struggle for some to put food on the table,” Jones said.
Rep. Chris Pringle, R-Mobile, is another GOP lawmaker who expressed an openness to supporting a reduction or elimination of state sales taxes on essential, healthy food items.
"Why make it cheaper for people to go buy Coca-cola, potato chips, cookies and ice cream?" Pringle told reporters in early March. "If you want to talk about taking the tax off of food that we need — good, healthy food — we can talk about that."
Jones is hopeful the Legislature passes something this year. He said inflation and higher prices has brought the food tax issue to the forefront and given it more traction.
Orr said each percentage of the sales tax in his bill represents about $50 million. While some lawmakers have advocated for years for dropping the sales tax on food, how to do that without hurting school funding has always been the challenge.
If fully enacted, Orr’s bill would pull $200 million a year from the ETF. That’s less than the $500 million number often quoted in grocery tax discussions because Orr’s bill would only apply to foods allowed for purchase under the federal Supplemental Nutrition Program for Women, Infants and Children. That list includes baby foods and formulas, milks, cheeses, fruits and vegetables, eggs, canned fish and peanut butter.
“It focuses on the bare essentials of food, meaning produce, some meats and dairy and not junk food, soft drinks and candy that some people might argue are groceries.”
If municipalities have current sales taxes, Orr’s proposal does not impact them. But if they want to raise their sales taxes, they have to exclude those WIC items from the increase.
State leaders expect record revenue in the ETF in 2024, prompting several tax cut proposals, including others from Orr to reduce income taxes for some retirees and workers.
Orr said serious consideration of a grocery tax reduction bill would change conversations about other cuts.
“We don’t have unlimited resources to give unlimited tax cuts,” Orr said. “So that’s going to be for our legislative colleagues and Gov. (Kay) Ivey to discuss, but I wanted to put this forward as a proposal for members to be considering as a possible option to address the grocery tax because I know they’re hearing about it like I am.”
Alabama Daily News' Alexander Willis contributed to this report.
