The state sales tax on most groceries will be 2% starting Sept. 1, halved since 2023 when lawmakers first took the tax rate from 4% to 3%.
That initial tax cut legislation tied a future decrease of one percentage point to expected 3.5% growth in the state’s Education Trust Fund. But that didn’t happen for 2024 and wasn’t expected this year, so lawmakers moved to push forward the one percentage point reduction in the biggest tax-cut bill of the 2025 session.
Now, with that 3.5% growth trigger gone, any future cuts to the grocery tax will be up to lawmakers and the governor.
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“I think we’re on that road,” House education budget committee chairman Rep. Danny Garrett, R-Trussville, told Alabama Daily News recently. “I think the goal is to get to zero.”
Future decreases will depend on the economy, Garrett, who sponsored the bill for the most recent cut, said.
The one percentage point decrease that goes into effect in September is expected to have an about $122 million impact on the state’s Education Trust Fund, which supports education. Income and sales taxes are its largest revenue streams.
Uncertainties
According to end-of-May numbers, revenue in the ETF so far this fiscal year is 3.34% over last year to almost $7 billion since October. But there’s also some uncertainties, Garrett said.
Alabama Daily News reported last week that the state’s health insurance program for education employees is projecting a shortfall between $360 million and $418 million in fiscal year 2027.
The projected shortfalls are driven by uncertainty in federal Medicare policy and an unexpected spike in claims costs.
“We’ll have to consider that (and other factors),” Garrett said. But reducing taxes in a fiscally responsible and measured way is a priority.
“I think the grocery tax would be one of the priorities because that has been a goal,” he said.
EDITOR’S NOTE — This story was written by Mary Sell and originally published by Alabama Daily News.
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