Alabamians pay both state and local taxes on their groceries, but thanks to two new bills, taxpayers will see relief soon. Starting September 1, 2025, the Alabama state sales tax on groceries will decrease from 3% to 2% and local jurisdictions will be able to lower their taxes as they see fit.
Alabama State Grocery Tax
HB 386 was passed by the Alabama Senate on Tuesday, May 6th and fast-tracks a tax-reduction on groceries that was already set in place. Lowering the state tax is an effort that has been ongoing for a few years. Until 2023, groceries were taxed at the full state sales tax of 4%. Most of the grocery tax revenue goes to the Education Trust Fund (EFT), which pays for public education in the state.
In 2023, lawmakers passed legislation that decreased the state tax on groceries from 4% to 3%. At the time, a plan was set that would continue to cut the grocery tax when the EFT revenue grew 3.5%. Though the 3.5% growth has not been met at this point, the additional 1% decrease in grocery taxes is set to take effect beginning in September. This sales tax reduction is estimated to save $122 million annually for Alabama residents.
Alabama Local Grocery Tax
Alabama is one of 13 states that taxes groceries at the state level. In addition to the state tax, there are local taxes on groceries – and in some areas of the state, the combined tax can be as high as 10%. To address this, in addition to HB 386, the Senate passed HB 387, which will allow local governments to also reduce their sales and use tax on groceries. Both bills passed with no opposition.
Alabama Grocery Items Affected by Decreased Taxes
Generally, items that are also eligible for purchase with Supplemental Nutrition Assistance Program (SNAP) benefits qualify for the lower sales tax. This includes items like fruits and vegetables, meat, poultry, fish, dairy products, bread, cereal, other snacks and non-alcoholic beverages, seeds and plants that produce food.
Items that are not considered “food” and therefore are subject to the full 4% state tax include the following: alcoholic beverages, tobacco products, hot prepared foods, pet food, cleaning supplies, paper products, vitamins and supplements, cosmetic items, hygiene items.
Taxes in Alabama
The reduction on the state grocery tax will provide relief to all Alabamians. However, this reduction in income for the state could affect other tax-based bills in the state going forward. Follow Avizo Group on social media to stay up-to-date on taxes that affect you.
Ellie LaPorte
An Accountant II, Ellie provides expertise in tax, assurance, and client accounting services. She is always learning new ways to assist our customers in achieving their financial goals and optimizing their business operations.
