“Everything you see I owe to spaghetti.” – Sophia Loren

Ideas like House Bill 386 have been floating around Montgomery during legislative sessions for way over a decade.

The concept is one of the rare state policy topics that has managed not to fade away over the years while still never quite achieving a clear resolution. Given this history, it is somewhat surprising last week’s passage of HB 386 did not receive much fanfare.

Perhaps this is because HB 386 only reduces the state’s sales tax on food by 1 percent. It does not make for an arresting headline.

Yet, for many years the Legislature has wrestled with the idea of eliminating or reducing the tax collected for food sales. In 2023, it actually took a first step in the process by passing legislation to take the sales tax down from 4 percent to 3 percent.

The 2023 law also introduced a formula to drop the food sales tax further down to 2 percent as long as the level of revenue for the state’s Education Trust Fund also grew. Otherwise, the food sales tax remained at 3 percent.

The current bill drops that formula altogether. Starting in September the state will collect at the 2 percent level with no conditions attached.

If you are wondering what foods get the reduced sales tax rate, the Alabama Revenue Department says the reduction applies to the purchase of “food or food product for home consumption, except alcoholic beverages, tobacco, hot foods, or hot food products ready for immediate consumption.”

Nevertheless, when you buy your groceries in September and glance at your receipt, you are going to notice your sales tax is still higher than 2 percent.

This is because the city, town or county in which you live also collects sales tax in order to pay for the various services provided by local government such as law enforcement, road maintenance and public education, among other amenities.

This leads to the other interesting part of HB 386 which is something it did not do. Back in 2023, some legislators were concerned a few sly local governments might bump up their sales tax rate by 1 percent when the state’s sales tax was scheduled to drop by 1 percent.

Many folks do not understand there is a difference between state and local governments, so if that scenario played out in some parts of the state, legislators would have a difficult time claiming credit for lowering people’s grocery bills.

To stop this from happening, the 2023 bill prevented local governments from raising their sales tax on food items from the established rate at the time the bill was passed. The recently passed bill keeps that cap in place.

This leads us to a quandary of competing values. The Legislature is often accused, and with good reason, of playing Big Brother to local governments in the state.

The amount of freedom provided to Alabama’s city councils and county commissions to make their own decisions is low when compared to other states. State senators and representatives often have to introduce legislation to pass any new local laws or adjust old laws.

Adding in one more limitation about how local governments can determine their own tax levels represents yet another way local governments are hamstrung in being able to carry out the will of their constituents.

On the other hand, complaining about state government limiting local governments’ ability to raise your taxes might feel like shooting your water pistol into a gale-force wind.

Alabama’s overreliance on the sales tax as a revenue source is well-documented. Revenue generated from sales tax significantly outpaces any other form of tax revenue collected in Alabama, and we have seen combined local and state sales tax rates creep up to 10 percent and even beyond in some places.

Higher sales taxes tend to have a greater negative effect on poor and working-class families than other types of taxes, and with this tax cap specifically targeting food – which we all need – this cap could be beneficial to those who need it most.

So what should we think about this? The best outcome would be for the tax reduction to go into effect and the Legislature to remove the limitation on local government sales tax rates next year. But, of course, the Legislature is unlikely to bring this back up next year, so maybe being happy with a little bit of tax relief is the way to go here. I’ll holster my water pistol for now.