AL Grocers Face State Tax Holiday As National Rollback Accelerates

Beginning May 1, Alabama grocers will stop collecting the state’s 2 percent sales tax on food for two months under House Bill 527. But as the Alabama Department of Revenue has made clear, the temporary holiday comes with important operational considerations for retailers — and Alabama is far from alone in the push to cut grocery taxes.

Alabama’s 60-day suspension: What grocers need to know

The Alabama Department of Revenue confirmed in a recent notice that while the state portion of the tax is suspended through June 30, city and county sales taxes on food remain in effect.

That means grocers must operate in a split-rate environment for 60 days – no state tax on eligible groceries, but the full local tax is still due at the register.

Gov. Kay Ivey, who signed House Bill 527 into law on April 16, 2026, framed the measure as part of a broader commitment to tax relief.

“I am also glad we are able to put a two-month pause on the state’s portion of the grocery tax to help families across Alabama,” Ivey said. “Any time we can responsibly provide some relief for the hardworking people in our state, I am all for it.”

The suspension applies only to “food” as defined under the federal Supplemental Nutrition Assistance Program (SNAP) in 7 U.S.C. § 2011 — essentially items intended for home consumption.

Alcoholic beverages, tobacco products and hot prepared foods ready for immediate consumption remain fully taxable, including the state’s 2 percent portion.

For grocery operators, the practical challenge is significant. Point-of-sale systems must be reprogrammed to remove the state tax from SNAP-eligible items while preserving local taxes. Online ordering and delivery platforms will need parallel updates.

ADOR’s guidance makes clear that reporting requirements remain largely unchanged. Retailers must still report all gross sales of qualifying food items on their state tax returns, then deduct those qualifying food sales when calculating state tax owed. Local tax reporting continues as before.

The temporary holiday follows Alabama’s gradual reduction of its state grocery tax from 4 percent to 3 percent in 2023 and from 3 percent to 2 percent in 2024. Alabama remains among a shrinking group of states that still impose a state-level sales tax on groceries.

Ellie Taylor, president and CEO of the Alabama Grocers Association, said the association supported the legislation.

“After decades of advocacy, Alabama’s grocery industry is proud to have helped reduce the state sales tax on food from 4 percent to 2 percent, putting real savings back into the pockets of families,” Taylor said. “We appreciate the state’s decision to implement a sales tax holiday from May 1 through June 30 and the meaningful relief it will provide to Alabamians at the checkout. While this is an important step forward, we remain committed to working toward our ultimate goal – eliminating the state sales tax on food entirely so that no family pays extra just to put food on the table.”

States that still tax groceries

With Arkansas and Illinois having dropped their state grocery taxes on Jan. 1, the number of states that still levy any state-level sales tax on food for home consumption has fallen to about nine, depending on how tax-credit states are counted (AARP, March 2026).

States that eliminated state grocery taxes effective Jan. 1, 2026

Arkansas repealed its state sales tax on groceries (0.125 percent). County and municipal grocery taxes remain in effect.
Illinois eliminated its 1 percent state grocery tax. Critically, the new law also authorizes municipalities and counties to impose their own local grocery tax of exactly 1 percent by ordinance, meaning more than half of Illinois residents will continue to pay a local grocery tax.

Recent reductions and active debate

Mississippi reduced its state grocery tax from 7 percent to 5 percent effective July 1, 2025, under the Build Up Mississippi Act (House Bill 1), which Gov. Tate Reeves signed on March 27, 2025. Mississippi had previously carried the nation’s highest state grocery tax rate, though local governments retain authority to impose their own grocery taxes on top of the state rate.
Tennessee lawmakers again proposed eliminating the state’s 4 percent sales tax on groceries during the 2026 session, but the legislature passed its state budget without including a grocery tax cut, leaving it in place.
Virginia reduced its state grocery tax from 1.5 percent to 1 percent effective Jan. 1, 2023, but the 1 percent local grocery tax remains in effect statewide. A 2026 legislative effort to eliminate the remaining grocery tax entirely was postponed for consideration in the 2027 session.
Idaho taxes groceries at the full 6 percent state sales tax rate but offers a refundable grocery tax credit averaging $155 per resident. A ballot initiative to repeal the tax is circulating for November.
Hawaii applies its general excise tax to groceries but offers a refundable food/excise tax credit to eligible residents.

Other states that eliminated grocery taxes in recent years

Kansas completed its multi-year phase-down, cutting its state grocery tax to 0 percent on Jan. 1, 2025.
Oklahoma eliminated its 4.5 percent state grocery tax effective Aug. 29, 2024.

States with no state sales tax on groceries

The majority of U.S. states exempt groceries from state-level sales tax.

According to the Tax Foundation’s 2026 state sales tax rankings and industry trackers, 37 states plus the District of Columbia exempt most grocery food from state sales tax. These include California, Texas, Florida, New York, Pennsylvania, Ohio, Michigan, Georgia, North Carolina, New Jersey, Arizona, Massachusetts, Washington, Indiana, Maryland, Wisconsin, Minnesota, Colorado, South Carolina, Louisiana, Kentucky, Connecticut, Nevada, Iowa, Nebraska, West Virginia, New Hampshire, Maine, Rhode Island, Montana, Delaware, North Dakota, Vermont, Wyoming, New Mexico (via retailer exemption), Kansas (as of 2025), and Arkansas and Illinois (as of 2026).

Five states – Alaska, Delaware, Montana, New Hampshire and Oregon – have no state sales tax at all, so groceries are automatically untaxed at the state level (though Alaska allows local sales taxes).

Grocers operating across state lines should note that several “no state grocery tax” states still permit local jurisdictions to tax food.

Georgia, Louisiana, North Carolina and Colorado are notable examples where local grocery taxes of 3 percent to 5 percent may still apply at the register.

What this means for grocers

The rapid pace of grocery tax change creates compliance headaches and strategic opportunities for retailers nationwide.

Alabama’s May 1-June 30 window was set by the legislature as part of HB527, a broader bill focused on overtime tax deductions. The grocery tax amendment was added on the House floor by Rep. Mike Shaw (R-Hoover) and pushed the bill’s fiscal impact from $37.4 million to an estimated $83.4 million.

The Alabama Department of Revenue has confirmed that unless lawmakers act to extend or repeat the holiday, the full 2 percent state tax on groceries will resume on July 1.

For grocers nationwide, the lesson from Alabama, Illinois, Mississippi and Arkansas is clear: the regulatory environment for grocery taxation is no longer stable.

Retailers with locations in multiple states should build flexibility into POS and e-commerce systems to accommodate mid-year rate changes, temporary holidays, and the increasingly common split-rate scenarios where state and local authorities treat food differently.

Multi-state operators in particular need SKU-level tax mapping that can be updated quickly as jurisdictions carve out new exemptions or authorize new local levies, as Illinois did with its 1 percent municipal option.

Staff training also takes on new importance. Front-end associates fielding customer questions about why local tax still appears on a “tax-free” purchase – a scenario playing out in Alabama starting May 1 and in Arkansas and Illinois year-round – need clear talking points.

Grocers should also coordinate early with POS vendors, accounting teams and state grocers association contacts whenever a legislative change is pending.

With consumer attention on food prices near record highs and several states having acted on grocery taxes in the past three years, the retailers that treat tax agility as a core operational discipline will be best positioned as the next round of state-level changes arrives.