State Rep. John Knight, D-Montgomery, is once again renewing his efforts to eliminate sales taxes on groceries in Alabama.
House Bill 44, prefiled for the next regular session of the Alabama House of Representatives, would “exempt sales of food from the sales and use tax beginning Sept. 1, 2017.”
Alabama is one of seven states that tax groceries at the full rate. In most states, food is exempt from state sales tax. In others, like Illinois and Arkansas, it is taxed at lower rates than the general tax.
According to the tax research group Tax Foundation, Alabama’s 4 percent sales tax rate ranks 40th lowest out of the 45 states that levy sales taxes. However, the average combined tax rate in Alabama, taking into account local taxes, is 8.97 percent, putting it at the fourth highest in the nation.
The bill would exempt groceries from being subject to the state sales tax but not from local taxes. In Alabama groceries would still be taxed at, on average, about 5 percent.
In the past, as in HB 307 presented last year, Knight has proposed replacing revenue lost from repealing the state sales tax on groceries by repealing Alabama law that allows taxpayers to deduct federal income tax from their state income taxes.
Arise Citizens’ Policy Project, a progressive Alabama nonprofit organization focusing on policies affecting low-income residents, has been one of Knight’s biggest supporters on the issue.
Carol Gundlach, policy analyst at ACPP, said Knight decided to remove the language from this year’s bill that would repeal the tax deductions.
“It’s going to be incumbent on the legislature to figure out what to do to replace that money,” Gundlach said.
Much of the money from the state sales and use taxes go into Alabama’s Education Trust Fund, and exempting groceries from taxation would leave a large hole in the fund.
While ACPP continues to support the elimination of the tax deductions, Gundlach said separating the two issues could help garner enough bipartisan support to pass the bill.
“We have heard a number of relatively conservative legislators say they do think that it’s fundamentally inappropriate to be taxing groceries.”
State Sen. Gerald Dial, R-Lineville, said he believes ACPP has hindered progress on advancing similar bills of his in the past.
“That bill is never going to pass,” Dial said of a bill that would end the income tax deductions. “That bill will not pass in the next 20 years.”
“They’re so stuck on that, that they’re willing to kill my bill and not get anything,” he continued.
Dial’s past bills, like SB 272, introduced during the 2016 session, also eliminate the state sales tax on food. SB 272 would have reduced the tax on groceries 2 percent per year for two years. To make up for lost revenue, state sales tax on all other goods, except automobiles and other machinery, would be raised from 4 to 5 percent, also over a two years period.
“I don’t know why Arise won’t get on my bill and say, ‘We realize we can’t get ours, we think this is not the best solution, but it’s the only solution that has a practical way to pass,’” Dial said.
“It didn’t come with a replacement,” he said, referring to HB 44’s lack of solution for lost revenue. “So it sounds good, but it’s just not going anywhere.”
Dial also said some of his Republican colleagues are reluctant to vote for what is, for non-food goods, a tax increase.
While the two bills share the goal of eliminating state sales tax on groceries, Gundlach said ACPP would prefer to see a bill passed that didn’t raise sales tax any further.
“Sales tax is, in general, regressive,” Gundlach said. “So to replace a tax on groceries with a tax on sneakers for your kids does not help low-income people very much.”
Dial argued food is more of a necessity than other goods and said completely eliminating the sales tax on groceries would make up for the percent increase in general sales tax.
A 2016 study on the correlation between grocery taxes and food security — the measure of access people have to quality affordable food — conducted by professors from Auburn University, University of Kentucky and Cornell University found “households living at or near the poverty level are the most vulnerable to the negative repercussions of the imposition of a grocery tax.”
U.S. households in the lowest income quintile spend between 28.8 and 42.6 percent of their before-tax income on food, compared to the highest income quintile households, which spends 6.5 to 9.2 percent, according to the Economic Research Service of the USDA.
Gundlach said ACPP is open to looking at other possible means of replacing the lost revenue, including raising sales tax on automobiles or levying one on services, which are currently not taxed in Alabama.
“We could see some other sales taxes that we might consider more progressive, and therefore more acceptable,” she said.
Skeptical of some that suggest growth in the budget could make up for the loss of funds, Dial said he continues to believe the increase on general sales tax is the only “logical” way a bill like his or Knight’s could pass.
Dial said he is unsure whether he will propose another bill this session to eliminate the grocery tax, but said he is sure the governor would sign it into law if one were to pass.
Knight could not be reached for comment.
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