Bill to phase out state sales tax on groceries goes before Senate committee

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Sen. Gerald Dial, R-Lineville, on the floor of the senate at the Alabama Statehouse in Montgomery, Ala. on Tuesday April 2, 2013. (Montgomery Advertiser, Mickey Welsh)

Sen. Gerald Dial, R-Lineville, on the floor of the senate at the Alabama Statehouse in Montgomery, Ala. on Tuesday April 2, 2013. (Montgomery Advertiser, Mickey Welsh)

Virtually everyone at a Senate hearing Wednesday morning agreed that the state sales tax on groceries should be eliminated.

But the question in 2014, as it has been for many years, is how to do it.

For Sen. Gerald Dial, R-Lineville, the most practical approach is eliminating the state’s four percent sales tax on food and groceries over three years, while increasing the general state sales tax from four percent to five percent over that time to make up lost revenue.

“The most regressive tax we have is on food,” Dial said during a public hearing on his bill during a meeting of the Senate Finance and Taxation Education committee. “We have an opportunity to change the structure of how we tax food in the state.”

Other speakers did not disagree with Dial’s aim, but raised concerns about the impact of raising the general state sales tax another percentage point. Kimble Forrister, executive director of Alabama Arise, a non-profit that works on poverty issues, praised the senator for keeping the issue alive but noted that under Dial’s bill, overall sales taxes in Montgomery for non-food items would increase from 10 percent to 11 percent.

“It’s getting to be too big a bite out of people’s wallets,” he said.

Alabama is one of a handful of states that still fully taxes groceries; most other states have either eliminated the tax or reduced it. Rep. John Knight, D-Montgomery, has for years pushed legislation that would eliminate the state sales tax on groceries. Knight’s bill, which is still in a House committee, would pay for it by eliminating the state’s deduction for federal taxes. Forrister said that kind of approach would allow a regressive tax to be replaced with a progressive tax.

Dial, however, said that approach was unlikely to win approval from the current Legislature.

“You’re asking us to put this aside, to pass something that’s not going to pass,” he said.

The Legislative Fiscal Office estimates Dial’s bill would increase revenues to the Education Trust Fund and General Fund by about $28 million annually. Dial’s bill also includes a provision that would require lawmakers in the 2018 Regular Session to review the act and make any adjustments to the state’s budgets to ensure they are “revenue neutral.” That drew concerns from Susan Kennedy of the Alabama Education Association.

“I don’t know that we should bind them to required cut to both budgets in 2018,” she said.

Dial said the language was aimed at lawmakers. “No one wants to be involved in voting for large increase in taxes at this time,” he said.

Sen. Hank Sanders, D-Selma, also raised concerns about the legislation, noting that big-ticket items, such as cars, which fall under a separate category of sales tax, would not be affected by the legislation. The increase in the general sales tax, he said, would hurt poor families trying to buy clothing.

“Anybody who buys a jet, they don’t pay more,” he said. “They buy shoes for their children, they pay more.”

The full Senate committee may vote on the Dial’s bill next week. Forrister said he did not have high hopes for it.

“I really don’t expect much movement on the issue this year,” he said after the meeting. “There are a lot of people on both sides of the aisle who have concerns with swapping out one regressive tax with another.”

Dial said after the meeting he had not considered exempting clothing, saying that if he included or excluded other items, lobbyists from affected industries could move to kill the bill. The senator said he “wished he had a better solution,” but said his bill has support both in the House and from Senate leadership.

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