Issue: Tax Reform

Dial grocery tax bill, landlord-tenant changes advance in Alabama Legislature

By Chris Sanders

Many low-income Alabamians could pay more in sales taxes under a bill that cleared a state Senate committee Wednesday. The Senate’s education budget committee voted 6-2 to approve SB 287, sponsored by Sen. Gerald Dial, R-Lineville. The measure awaits consideration by the full Senate.

Dial’s bill gradually would end the state’s 4 percent sales tax on groceries and increase the sales tax on other items by 1 percentage point to replace the lost education revenue. By September 2017, the state sales tax on most consumer items would be 5 percent under the bill. That would drive the total state and local sales tax rate in Birmingham and Montgomery to 11 percent.

ACPP executive director Kimble Forrister testified against SB 287 last week, saying it would negate the grocery tax savings for many low-income Alabamians by increasing the cost of everything else they buy. “We’re basically replacing one regressive tax with another regressive tax,” Forrister told lawmakers.

Sen. Vivian Figures, D-Mobile, echoed Forrister’s concerns Wednesday. “Everybody knows sales taxes are regressive, and you’re putting it on the backs of people who can least afford it,” Figures said.

Sen. Hank Sanders, D-Selma, said he worried that Dial’s bill would increase taxes on low-income Alabamians who receive food assistance under the Supplemental Nutrition Assistance Program (SNAP). SNAP recipients do not owe sales taxes on food bought using SNAP benefits, Sanders said, so they would not realize any tax savings on that portion of their grocery bill. But SB 287 would raise the sales taxes they pay on other purchases like clothes and school supplies, he said.

“These people who are at the very bottom and the worst off are going to end up paying sales tax on these other items,” Sanders said.

Landlord-tenant law changes OK’d in House committee

Some deadlines in Alabama’s landlord-tenant law would become more favorable to property owners under a bill that won House committee approval Wednesday. HB 523, sponsored by Rep. Paul Beckman, R-Prattville, awaits consideration by the full House.

Beckman’s bill is identical to a Senate proposal – SB 291, sponsored by Senate President Pro Tem Del Marsh, R-Anniston – that cleared a Senate committee last week. The measures would nearly double, from 35 days to 60 days, the time in which landlords must refund a departing tenant’s security deposit or give notice of why they are keeping all or part of the deposit.

The bills also would require landlords to give tenants a seven-day written notice if they plan to terminate the lease over a violation that does not involve failure to pay rent. Current law requires a 14-day written notice in such a circumstance.

The House and Senate likely will meet into Wednesday night and then return Thursday for the 19th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Policy analyst Stephen Stetson contributed to this report. Posted Feb. 26, 2014.

Alabama Senate panel discusses plan to end state grocery tax, raise sales tax on other items

By Chris Sanders

An Alabama Senate committee took no action Wednesday on a proposal to swap the state grocery tax for a higher sales tax on other items. The panel could vote next week on SB 287, sponsored by Sen. Gerald Dial, R-Lineville. Committee members heard public testimony on the bill Wednesday.

Dial’s bill would end the state’s 4 percent sales tax on groceries and increase the sales tax on other items by 1 percentage point to replace the lost education revenue. The bill would phase in the changes over four years and would not require a public vote.

By September 2017, the state sales tax on most consumer items would be 5 percent under the bill. Local sales taxes would be unaffected, but the combined state and local tax rate would rise to 11 percent in Birmingham and Montgomery. “It’s getting to be too big of a bite out of people’s wallets,” ACPP executive director Kimble Forrister told members of the Senate’s education budget committee.

SB 287 would negate many low-income Alabamians’ grocery tax savings by increasing the cost of everything else they buy, Forrister said. Items like clothes, toiletries and school supplies would be subject to a higher sales tax under the plan.

“We’re basically replacing one regressive tax with another regressive tax,” Forrister said. “The best way to approach a regressive tax is to balance it out with a progressive tax.”

Forrister commended Dial for drawing attention to Alabama’s status as one of only four states with no tax break on groceries. But a better way to replace the revenue from the grocery tax, Forrister said, is found in HB 130, sponsored by Rep. John Knight, D-Montgomery.

HB 130 would end the state grocery tax all at once and would repeal the state’s income tax deduction for federal income taxes (FIT). Only two other states offer a full FIT deduction, and the top 3 percent of Alabama taxpayers received more than half of its savings in 2011. Because the deduction is written into the state constitution, HB 130 would require voter approval.

Dial said HB 130 faces legislative opposition, including his own, and will not pass this year. SB 287 stands a better chance of becoming law, he said. “This is the only option out there to remove sales tax for food,” Dial said. “I know you can argue that shoes and clothes and toothpaste are a necessity, but not as much as food.”

‘It’s not going to help folks at the lower end’

SB 287 would boost combined receipts to the Education Trust Fund (ETF) and General Fund by $28 million a year, according to the Legislative Fiscal Office, but the bill would require the Legislature to re-examine its changes in 2018 to ensure they are revenue-neutral. Susan Kennedy of the Alabama Education Association urged Dial to remove that provision to avoid forcing future lawmakers to slash ETF funding. “Let the 2018 Legislature deal with that issue when it comes,” Kennedy said.

Sen. Hank Sanders, D-Selma, said Dial’s bill was “selective” in raising the state sales tax on many everyday consumer items but not on more expensive purchases like cars. “It’s not going to help folks at the lower end,” Sanders said. “If they miss ’em in the washer, they’re gonna get ’em in the ringer.”

Alabama’s tax system requires low- and middle-income families, on average, to pay twice the share of their incomes in state and local taxes that the richest Alabamians pay, according to the Institute on Taxation and Economic Policy. Sales taxes are the biggest driver of that gap, because low-income families must devote more of their household budget to food, clothes and other necessities subject to those taxes.

The Legislature will return Thursday for the 16th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Posted Feb. 19, 2014.

Earthquake on Goat Hill: How the Alabama Accountability Act passed and what it means

By Chris Sanders

Alabama would provide income tax credits to help subsidize private or religious school tuition for parents of children zoned for “failing schools” beginning this fall if Gov. Robert Bentley signs the plan into law. The House and Senate approved the measure, known as the Alabama Accountability Act, mere hours after it was first introduced on Feb. 28, 2013. Bentley declared his intention to sign it, but a state trial court on March 6, 2013, issued a temporary restraining order to prevent the bill from going to him.

This paper by ACPP policy analyst Chris Sanders assesses the backdrop from which the Alabama Accountability Act emerged, summarizes its main provisions and considers its impact on the state’s public education infrastructure.

Ending the state grocery tax and protecting schools

By Alabama Arise

Alabama’s tax system is upside down, and the state sales tax on groceries is one reason why. Alabama remains one of only two states — the other is Mississippi — with no tax break on groceries. Food costs consume a larger portion of the household budget for low-income families than for those who are better off, so the grocery tax hits low-income people especially hard. The grocery tax is part of why Alabama’s overall tax system requires low- and middle-income people to pay twice as big a share of their incomes in state and local taxes as the riches households pay.

A tax on survival: Grocery tax policies in America

By Chris Sanders

Food takes a much bigger bite out of the household budget for low-income families than for richer ones, and sales taxes on groceries thus hit harder at lower incomes. In recognition of this fact, most states either have exempted groceries from state sales taxes entirely or have devised ways to help offset grocery taxes for low-income people. Alabama and Mississippi stand alone in offering no tax break break on groceries.

This fact sheet considers the effects of grocery taxes on low-income households and examines the ways that Alabama could reduce or eliminate its sales tax on groceries.

Teamwork for the common good

By Alabama Arise

If you talk to a low-income Alabamian about the state’s tax system, you’re liable to hear two things. One is a boast that the state has some of the nation’s lowest taxes. The other is a complaint that, nevertheless, the person pays too much in taxes. The statements may sound contradictory, but both are grounded in reality.

This fact sheet examines an Alabama tax paradox: that low-income residents pay so much in taxes even as their state collects comparatively little money for the public services that can help make their lives better.

A sense of scale: Small businesses in Alabama

By Chris Sanders

Lawmakers often debate how a bill would affect small businesses, but no single official definition of “small business” exists. What are small businesses, anyway? How are they taxed in Alabama? And do small businesses survive or fail because of taxes, or do other factors play larger roles?

This fact sheet answers these questions and more.

Big piece of a small pie: Alabama’s tax paradox

By Chris Sanders

If you talk to a low-income Alabamian about the state’s tax system, you’re liable to hear two things. One is a boast that the state has some of the nation’s lowest taxes. The other is a complaint that, nevertheless, the person pays too much in taxes. The statements may sound contradictory, but both are grounded in reality.

This fact sheet examines an Alabama tax paradox: that low-income residents pay so much in taxes even as their state collects comparatively little money for the public services that can help make their lives better.