The Alabama State House in Montgomery, Alabama as seen on July 10, 2023. (Stew Milne for Alabama Reflector)
Alabama’s gross sales tax receipts are expected to decline for the first time since 2009.,
Kirk Fulford, deputy director of the Fiscal Division of the Legislative Services of Alabama, wrote in an email Wednesday that the 2009 decrease came during the Great Recession, while the drop this year was due to a cut in the sales tax on groceries and a return to normal growth rates after “abnormally” high rates of growth in 2021 and 2022 following COVID.
“We expected a decline in sales tax revenues this year due to the reduction in the sales tax on groceries and the return to normal growth pattern otherwise,” he said. “In other words, it really is not an apples-to-apples comparison because the tax base in this year is smaller than last year.”
The drop was first reported by Alabama Daily News. According to a dashboard from the Fiscal Office, the gross sales tax receipts were $259.7 million for the month, or a decrease of $10.5 million (-3.9%) year over year.
According to a spreadsheet for summary comparison of net receipts, the sales tax amount of change year to date is a decrease of around $42.3 million, or -1.80%. Alabama’s current fiscal year began on Oct. 1 of last year and will end on Sept. 30.
Fulford wrote that the net sales tax revenues are deposited into the ETF after refunds and other deductions are removed from the gross.
“The net number is down by less than the gross because some of the deductions, like Revenue admin expenses and DHR-SNAP admin are less than last year,” he wrote. “Less deductions works as a positive receipt and that has helped offset some of the decline in gross receipts. Confusing, I know.”
Fulford wrote that overall ETF receipts should end with positive growth with the sales tax being down.
“Income taxes, particularly corporate income taxes, are up by more than sales taxes are down,” he wrote.
The dashboard says that total available revenues for the ETF, including the beginning balance, are $11.9 billion.
The year-to-date analysis for August says that the Education Trust Fund is up 1.20% percent from 2023, from income tax, sales tax and other revenues, according to the dashboard.
Until last year, Alabama was one of only three states that fully taxed groceries. In some places, the combined state and local tax on groceries went as high as 10%. Advocates had sought to reduce the levy for years, saying it raised the cost of food and led to food insecurity.
In 2023, the Alabama Legislature passed a bill that cut the state sales tax on food from 4% to 3% and left room for an additional cut if the ETF grew by 3.5%.
Rep. Danny Garrett, R-Trussville, the chair of the House Ways and Means Education Committee, which oversees the ETF, said in a phone interview Wednesday afternoon that the reduction was expected.
“We’ve been saying that consistently, and that’s why we’ve been careful the last several years not to spend everything that we could have spent, and we’ve not spent to the cap for a number of years,” he said.
Garrett said that they always knew that they would see a stabilization of revenue and that’s why they put the guardrails on the grocery tax reductions.
“We’ve not spent everything we could have spent and where we reduced taxes, we have put in some appropriate guardrails to make sure we don’t dig a hole,” he said.
Chris Sanders, communications director for Alabama Arise, said that it was heartening that the overall ETF receipts are still up and that the ETF reduction is lower than projected.
“It’s one of the biggest benefits of the grocery tax reduction, which is families being able to use money that otherwise would have gone toward the grocery tax to go buy other things, you know, to be able to buy another gallon of milk or another loaf of bread, or to go buy other essential items like clothes or medicine or school supplies,” he said. “So you know that the state has received sales tax revenue from those additional purchases in families that still enable to get the full benefit of the reduction and make their household budgets go further.”
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