The bill HB386 amends several sections of the Code of Alabama 1975 to significantly reduce the state sales and use tax rate on food. The tax rate on food sales will be lowered from four percent to three percent effective September 1, 2023, and further reduced to two percent on September 1, 2024. The legislation also removes the previous requirement that the tax rate reduction be contingent upon a growth rate in the Education Trust Fund's net receipts. Additionally, it stipulates that 58 percent of the total tax generated from certain sales will be allocated to the Education Trust Fund, while 42 percent will go to the State General Fund. Moreover, the bill revises provisions related to local governing bodies' ability to adjust their sales tax rates on food, eliminating previous restrictions and allowing reductions if their general fund growth exceeds two percent over the previous year. It also clarifies the definition of "food" for county and municipal sales and use taxes, ensuring that local tax rates align with the general sales tax rate in effect. The bill removes the provision that would have reduced the tax rate to two percent after September 30, 2025, and eliminates the growth condition for subsequent fiscal years. The act is set to take effect on June 1, 2025, and includes various exemptions for tangible personal property, ensuring a streamlined approach to food taxation while providing local governments with flexibility.

Statutes affected:
Introduced: 40-23-2, 40-23-61
Engrossed: 40-23-2, 40-23-61
Enrolled: 40-23-2, 40-23-40, 40-23-61, 40-23-62