What you need to know about 2 important tax changes coming to Alabama

Alabama’s tax rates will soon change, thanks to two recent bills that have been passed. On Thursday, June 15, Governor Kay Ivey signed HB479—a bill that will reduce the state’s grocery tax—as well as HB77, which lowers prepaid sales tax for small businesses.

Keep reading to learn more about what this means for Alabama residents.

Long-awaited tax reduction

The grocery tax has been a topic of discussion in the legislative sphere for most of the year due to soaring food prices. According to WHNT, in April every state senator cosponsored a similar bill that would reduce the tax over the course of four years.

The long-awaited reduction comes as a result of “tighter times”, said Governor Ivey in a statement.

“I have signed HB479, the one percent reduction to the state’s portion of the grocery tax. As Alabamians and Americans alike are grappling with tighter times, I am hopeful that this decision by the Legislature to slightly reduce the sales tax on certain food items will be truly felt by Alabama families.”

Governor Kay Ivey

Effective September 1, the Alabama grocery tax will be reduced from 4% to 3%. Before the bill was signed, Alabama was one of only three states that taxed groceries the same as other items.

According to WVTM, the plan is to reduce the grocery tax gradually over the course of two years.

If tax collections to the Education Trust Fund are projected to rise 3.5%, the tax will be reduced again to 2% in September 2024. If the requirement is not met, the tax will be reduced to 2% whenever the growth meets its requirement.

Boosting small businesses

Another bill signed by Governor Ivey this month, HB77, increases the threshold for submitting estimated monthly sales tax payments from $5,000 to $20,000 according to the Birmingham Business Journal. The bill is intended to reduce the tax burden on small businesses, allowing them more resources to grow, expand and contribute to the state’s economy.

“Eliminating the requirement for our small businesses with less than $500,000 in monthly sales to prepay taxes is a no-brainer. It not only frees up capital but also allows owners to focus solely on turning a profit every month and staying in business.”

Governor Kay Ivey

The implementation of HB77 follows HB82, another bill passed last year targeted toward helping grow small businesses in Alabama. The bill includes corporate and income tax relief provisions, as well as sales tax and business personal property tax relief for small businesses across Alabama.

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