The sales tax rate on groceries drops from 4% to 3%, something the Alabama lawmakers approved this year in Montgomery.
The old saying goes ‘there is no such thing as a free lunch’ and the coming drop in the grocery sales tax is no exception. Still, Dr. Ben Meadows, an Associate Professor of Economics at UAB says this has the chance to help families.
“Just to do some calculations, if you have a family spending a $1,000 a month on groceries, this is $10 back in their wallets every month or $120 per year, so there are two ways to look at it,” said Dr. Meadows. Another way to view it; what’s good for the family is good for the state in terms of joining a number of other states that don’t charge a sales tax on groceries. It’s a matter of context, according to Dr. Meadows. “On the one hand this helps Alabama get off the wagon of being one of the few states that charges a grocery tax that commiserates with the sales tax rate, only a handful of states that do this,” said Dr. Meadows. But, there is no getting around the fact Alabama stands to lose hundreds of millions of dollars per year in state revenues. “This is how the state funds everything from schools to maintenance for schools and things that like that,” said Dr. Meadows. The tax will drop another 1% in September of 2024 but ONLY if the state’s education trust fund has grown enough over the previous fiscal year, according to state records. “If a certain threshold is met in the education trust fund is met, then it will come down by another 1%,” said Dr. Meadows. Now, it’s important to remember the tax rate drop does not apply to prepared foods or personal hygiene products.
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