On September 1st, Alabama families will receive another dose of relief at the checkout line. The state’s sales tax on groceries will drop from 3% to 2%, continuing a rollback that began in 2023. The change will also remove restrictions that kept some county and municipal governments from lowering the local portion of the grocery tax.
While an additional 1% cut may not seem earth-shattering to some, for working Alabamians feeling the squeeze from inflation and record prices, this tax cut is real progress. But additional tax reform measures, such as fully eliminating the grocery tax and providing income tax relief, should still be a top priority for Alabama lawmakers in 2026.
Cutting the grocery tax from 4% to 2% has been years in the making.
For decades, Alabama stood nearly alone in taxing groceries at the same rate as all other items, 4% at the state level, plus local sales taxes that pushed the total to 10% or more in some areas. Prior to 2023, Alabama was one of just three states that taxed groceries at the full sales tax rate, despite the obvious burden it placed hard-working Alabamians.
The nature of sales taxes means those with the least pay the largest share of their income just to buy food. That is why the Alabama Policy Institute has long called for change. In 2023, the Legislature acted, cutting the state grocery tax from 4% to 3%. Implementing the second phase of this reduction ahead of schedule is another step in the right direction.
Despite this year’s relief, Alabama is still lagging many other states, including our neighbors in Georgia, Florida, South Carolina, and Louisiana. Most U.S. states do not tax groceries at all. Among those that do, few come close to Alabama’s previous 4% rate. Even with this latest reduction, Alabama will remain one of the only states still taxing groceries at the state level. That is why this reform, while praiseworthy, must not be the end of the road.
Critically, this was a bipartisan achievement. The bill passed the Legislature unanimously and was signed by Governor Kay Ivey, who noted at the time that the tax cut would “provide some relief to the hardworking people” of Alabama. It is proof that when lawmakers listen to the people they serve, good policy can prevail over partisan politics.
Yet, while we celebrate, we must also acknowledge that the work is not finished.
Even after this latest cut, Alabama still levies a 2% state tax on groceries, a tax that continues to fall hardest on those who can least afford it. Ending the grocery tax altogether should remain a priority. It is possible to do this while maintaining state government’s commitment to essential services. Other states have managed it, and Alabama can too.
The path forward should include serious consideration of broader tax reform, not just on groceries, but throughout Alabama’s tax code. That is what many states across the nation have done with record surpluses over the past few years.
Since 2020, over half of all states have reduced individual income tax rates. Alabama is already at a competitive disadvantage in attracting new residents to the state compared to Tennessee and Florida, which levy no individual income taxes. Our neighbors in Georgia and Mississippi have also enacted historic income tax cuts over the past few years, with Mississippi enacting legislation to eventually eliminate the individual income tax altogether earlier this year.
In terms of corporate income taxes, at least 12 states have cut rates since 2020. Alabama has one of the highest statutory corporate income tax rates in the Southeast at 6.5%, ranking ahead of Georgia, Florida, Mississippi, South Carolina, North Carolina, and Kentucky. Regardless of deductions that may lower Alabama’s effective rate, having a higher statutory rate than neighboring states puts Alabama at a competitive disadvantage in attracting new businesses and creating jobs within the state.
Furthermore, Alabama’s fiscal position is historically strong, meaning that the state is well positioned to take less from its citizens.
Over the past five years Alabama’s state government has taken in more revenue and spent more taxpayer dollars than ever each year. In fiscal year 2024 tax revenues totaled more than $14.1 billion while the state’s two operating budgets spent over $11.8 billion. Much of the recent surpluses have been put into reserve funds or spent on one-time projects.
The Alabama Policy Institute believes that a tax system should reflect the values of the people it serves. It should be fair, transparent, and designed to lift barriers rather than create them. The goal of our state and local governments should not be to ensure their own growth, but rather to provide services that the private sector is unable or unwilling to.
Eliminating the remaining 2% grocery tax would provide additional relief for Alabama’s families, but it should be part of a bigger and stronger tax reform agenda in next year’s legislative session.
Now is the time for lawmakers to act boldly and provide generational tax relief for all Alabamians.
Justin Bogie is Senior Director of Fiscal Policy at the Alabama Policy Institute, with more than a decade of federal and state budget and policy experience, including roles at The Heritage Foundation and the U.S. House Budget Committee.
