Cut them now, trim them over time, hold them steady by bundling them with other tax packages, or punt to the next generation of lawmakers and voters. As the cost of living continues to skyrocket, many U.S. states are rethinking grocery sales tax rates.
In August, the U.S. Consumer Price Index rose 0.4% compared with July, the largest monthly gain since January. This pushed the annual inflation rate to 2.9%, up from 2.7% the previous month.
At the same time, Americans are buying more groceries online than ever before; a shift accelerated by the 2020 pandemic. Nearly one-third of 2024 grocery budgets were spent online.
Whether sliding items over a scanner in Alabama or checking out with a digital cart in Illinois, Americans are paying more:
- 10% more for tomatoes
- 5% more for laundry detergent
- 75% more for avocados
And in some states, sales taxes on groceries add another layer of cost.
Why States Tax Groceries
Groceries are a significant source of revenue for programs like infrastructure and education. Currently, 11 states levy statewide sales tax on groceries:
- Alabama
- Arkansas
- Hawaii
- Idaho
- Illinois
- Mississippi
- Missouri
- Tennessee
- South Dakota
- Virginia
- Utah
States phasing out the grocery tax
- Kansas and Oklahoma recently eliminated theirs.
- Arkansas and Illinois will end grocery taxes next year.
Local jurisdictions may also impose grocery taxes, especially in Illinois, where many municipalities have filled budget gaps this way.
The Challenge of Eliminating Grocery Taxes
The “grocery store sales tax” is often a political juggling act:
- Alabama delayed its elimination until growth targets in the state’s Education Trust Fund were met.
- In South Dakota and Utah, attempts to repeal grocery taxes became tied to broader legislation, such as school funding, complicating passage.
Alternatives and Reductions
Some states reduce the impact of grocery sales taxes with credits, exemptions, or holidays:
- Virginia is gradually lowering its grocery tax rate.
- Hawaii and Idaho offer credits to offset grocery taxes.
- Tennessee provided a three-month sales tax holiday on most food in 2023.
These efforts aim to ease burdens, especially for low- and middle-income families.
What Lawmakers Are Saying
Advocates like Chris Sanders of Alabama Arise argue:
“The grocery tax is something that is holding people back and making life harder for folks.”
Meanwhile, the Tax Foundation’s Jared Walczak counters:
“It is commonly assumed that exempting groceries from sales tax benefits low- and middle-income taxpayers. The assumption is simple, reasonable and wrong.”
This debate underscores why sales tax policy varies so widely across states.
The Road Ahead for Grocery Sales Taxes
While many lawmakers agree on eliminating grocery taxes, timelines vary by state. Political negotiations, revenue needs, and legislative priorities will determine how quickly changes happen.
One thing is clear: the future of state grocery tax rates remains a hot topic for both consumers and businesses.
How This Affects Your Business
If your business sells groceries, either in-store or online, sales tax developments in states like Alabama, Illinois, and Virginia may impact your compliance needs.
TaxConnex can help. We provide outsourced sales tax compliance services, acting as your sales tax department so you can focus on running your business.
Contact us today to learn more.
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