On Your Side: Explaining why shoppers may see two tax rates on their grocery receipts

BIRMINGHAM, Ala. (WBRC) - We’re On Your Side clearing up more confusion about the newly reduced state grocery tax and why some of you are not being overcharged.

There are, in fact, two tax rates now when shoppers head to the grocery store - one for edible food and the other for non-edible items.

The one percent reduction to the state’s food tax does not apply to some items, including:

Those items will be taxed at the standard rate for the area you’re shopping in.

However, the new grocery tax does apply to all edible foods, including:

Those items will be taxed at a lower rate.

When a shopper buys a mix of items, edible and non-edible products, they will see two tax rates on their receipt. It does not mean the entire total is being overtaxed.

The Alabama Grocers Association says, if in doubt, shoppers should look over their receipt and make sure what they buy is being taxed properly.

“Please be patient. This is a big change but we are very hopeful that in the future we can continue to reduce this tax,” said Ellie Taylor, President of the Alabama Grocers Association. “Next year, if the Education Trust Fund goes up another 3.5 percent, another percent will come off food. We have been working for decades to get the reduction in the food tax. This is a wonderful thing for the state of Alabama.”

For three decades, legislation has been introduced in the Alabama legislature to remove the state tax on groceries. The issue gained momentum this year because of an almost $3 billion surplus in the state’s current education budget. The two percent reduction in the state sales tax on food is not attached to a revenue measure to replace those sales taxes.

Under Act No. 2023-554, Alabama will gradually halve the state sales tax on food. The Alabama House of Representatives concurred June 1 with Senate changes to the legislation by Rep. Danny Garrett, R-Trussville, and Sen. Andrew Jones, R-Centre. Governor Kay Ivey signed the new tax structure into law June 15.

The revised tax uses the same definition of food as the federal Supplemental Nutrition Assistance Program, or SNAP.

On September 1, the state’s four percent sales tax rate on groceries dropped to three percent.

“The September 2023 sales and use tax returns due in October will have a separate column where the qualified food items must be reported,” the Alabama Revenue Department said in a late July notice to sellers. Sellers with questions about tex reduction should call the department’s Sales Tax Administration Section at (334) 242-1490.

The rate drops to two percent on September 1, 2024, if education revenue is projected to grow by 3.5 percent of more in the 2025 fiscal years.

“Rather than looking back to the prior year, we will look forward to the next year,” Garrett said.

If the state’s education revenue is not growing by at least 3.5 percent, the second one percent reduction will take place in the next fiscal year when the rate is achieved.

Removing two percent of the four percent state tax on groceries will save Alabama consumers slightly more than $318 million. As of Thursday, June 15, county and city governments cannot raise the sales tax on food. Under the legislation, local governments can reduce their food sales tax rate in 25 percent increments in any year when their local revenue exceeds two percent over the previous year. Reduction ordinances can take effect on October 1 following their adoption as long as October 1 is at least 60 days after adoption.

Local governments that reduce their food sales tax can raise it back to the level it was on June 15.

If you notice a miscalculation, the Alabama Grocers Association says to talk to the store you made the purchase from to get the issue corrected.

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