Alabama Senate panel discusses plan to end state grocery tax, raise sales tax on other items

An Alabama Senate committee took no action Wednesday on a proposal to swap the state grocery tax for a higher sales tax on other items. The panel could vote next week on SB 287, sponsored by Sen. Gerald Dial, R-Lineville. Committee members heard public testimony on the bill Wednesday.

Dial’s bill would end the state’s 4 percent sales tax on groceries and increase the sales tax on other items by 1 percentage point to replace the lost education revenue. The bill would phase in the changes over four years and would not require a public vote.

By September 2017, the state sales tax on most consumer items would be 5 percent under the bill. Local sales taxes would be unaffected, but the combined state and local tax rate would rise to 11 percent in Birmingham and Montgomery. “It’s getting to be too big of a bite out of people’s wallets,” ACPP executive director Kimble Forrister told members of the Senate’s education budget committee.

SB 287 would negate many low-income Alabamians’ grocery tax savings by increasing the cost of everything else they buy, Forrister said. Items like clothes, toiletries and school supplies would be subject to a higher sales tax under the plan.

“We’re basically replacing one regressive tax with another regressive tax,” Forrister said. “The best way to approach a regressive tax is to balance it out with a progressive tax.”

Forrister commended Dial for drawing attention to Alabama’s status as one of only four states with no tax break on groceries. But a better way to replace the revenue from the grocery tax, Forrister said, is found in HB 130, sponsored by Rep. John Knight, D-Montgomery.

HB 130 would end the state grocery tax all at once and would repeal the state’s income tax deduction for federal income taxes (FIT). Only two other states offer a full FIT deduction, and the top 3 percent of Alabama taxpayers received more than half of its savings in 2011. Because the deduction is written into the state constitution, HB 130 would require voter approval.

Dial said HB 130 faces legislative opposition, including his own, and will not pass this year. SB 287 stands a better chance of becoming law, he said. “This is the only option out there to remove sales tax for food,” Dial said. “I know you can argue that shoes and clothes and toothpaste are a necessity, but not as much as food.”

‘It’s not going to help folks at the lower end’

SB 287 would boost combined receipts to the Education Trust Fund (ETF) and General Fund by $28 million a year, according to the Legislative Fiscal Office, but the bill would require the Legislature to re-examine its changes in 2018 to ensure they are revenue-neutral. Susan Kennedy of the Alabama Education Association urged Dial to remove that provision to avoid forcing future lawmakers to slash ETF funding. “Let the 2018 Legislature deal with that issue when it comes,” Kennedy said.

Sen. Hank Sanders, D-Selma, said Dial’s bill was “selective” in raising the state sales tax on many everyday consumer items but not on more expensive purchases like cars. “It’s not going to help folks at the lower end,” Sanders said. “If they miss ’em in the washer, they’re gonna get ’em in the ringer.”

Alabama’s tax system requires low- and middle-income families, on average, to pay twice the share of their incomes in state and local taxes that the richest Alabamians pay, according to the Institute on Taxation and Economic Policy. Sales taxes are the biggest driver of that gap, because low-income families must devote more of their household budget to food, clothes and other necessities subject to those taxes.

The Legislature will return Thursday for the 16th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Posted Feb. 19, 2014.