The sales tax is expected to drop yet again in September 2024 by an additional percentage point, effectively cutting Alabama’s grocery tax in half. However, as AI.com points out, this only happens if the state’s Education Trust Fund (ETF) has grown by 3.5% over the previous fiscal year. This is because the original 4% grocery tax had helped provide annual funding to the state for education. If the growth projections don’t occur, the second 1% cut will be delayed until the ETF growth requirement is met.
Removing 2% of the 4% state tax on groceries will save Alabama consumers slightly more than $318 million, according to Alabama Retail.
Alabama’s reduced sales tax doesn’t apply to all grocery items. Qualified foods are those defined by the Supplemental Nutrition Assistance Program (SNAP): Fruits, vegetables, meat, poultry, fish, dairy, breads, cereals, snack foods, nonalcoholic beverages, and the seeds and plants that produce food. Prepared foods, such as hot deli items, as well as beer, wine and other adult beverages, aren’t subject to the reduction.
The tax decrease in Alabama comes at a time when consumers are still struggling with high prices at the supermarket. In July, prices went up in four of the six main grocery categories. The biggest leaps came within the meat, poultry, fish and egg category, which went up 0.5%, mostly fueled by higher beef prices. The CPI for beef climbed 2.4%, caused in part by drought conditions that affected the cattle market. The inflation rate for dairy and related products rose 0.5% in July, while fruits and vegetables edged up by 0.4%.
Meanwhile, Tennessee is giving its residents a three-month grocery tax suspension. From Aug. 1 to Oct. 31, Tennesseeans are estimated to save $273 million in total taxes.
Alabama and Tennessee are among the 13 U.S. states that currently impose a grocery tax. The other states are Illinois, Mississippi, South Dakota, Missouri, Virginia, Utah, Arkansas, Hawaii, Oklahoma, Idaho and Kansas.