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State Legislature passes grocery tax cut bill

Tax Cut Bills

The Grocery Tax Cut bill, HB479, passed both houses this week, sending the largest tax cut in Alabama history to the Governor. The bill will immediately cut the State’s tax rate on food from 4 percent to 3 percent beginning on September 1, 2023. The rate will be reduced to 2 percent beginning the following September if projected revenue growth is at or above 3.5 percent.

The 2 percent cut would represent a loss of about $300 million in revenue to the State each year. However, the State is expected to recoup much of that via spending in other sectors of the economy.

The bill prohibits local governments and counties from raising the tax on food after it is signed into law. Additionally, a committee will be formed later this year to analyze the cut’s impact and determine whether the remaining sales tax on food should be reduced.

HB217 by House Minority Leader Anthony Daniels also passed both houses and is awaiting Governor Ivey’s signature. The bill exempts overtime income from state income tax. In an effort to find a compromise, the bill was modified to (1) sunset at the end of 2026 and (2) establish an $25 million annual aggregate cap on the exemption. The Department of Revenue is charged with establishing rules to implement the cap.

Budgets Signed into Law

After a long week and late night, the budgets were presented to Governor Ivey last Friday. While there was some speculation that the Governor may use her authority to veto or modify the budgets, Ivey signed both the General Fund and Education Trust Fund Budgets along with their corresponding supplemental appropriations bills into law yesterday. All told, the budgets and supplemental bills authorize and appropriate around $15 billion of total spending between now and September 30, 2024 (the end of the State’s next Fiscal Year). The budgets are, by far, the largest in the history of the State.

Anti-ESG Bill Passes

Senator Dan Roberts’ anti-ESG bill, SB261, received final passage on Wednesday in the House. The bill, which was significantly modified in the Senate at the request of the business community, passed with little fanfare or debate in the House by a vote of 74-27. The legislation now goes to Governor Ivey for her consideration.

School Choice Bills Receive Final Passage

Changes to the Alabama Accountability Act (“AAA”) and the Alabama Charter School law both received final passage this week and are awaiting the Governor’s signature. Both bills passed largely along party-lines in each chamber. The AAA expansion will eventually increase the cap for income tax credits to businesses and individuals who donate to scholarship granting organizations from $30 million up to $60 million, while the Charter School legislation modernizes the process for appointing members to the Alabama Public Charter School Commission and makes clarifications as to how funds are appropriated to conversion charter schools.

Other Key Bills

SB196 by Senator Orr, which updates the oft-maligned public records law in Alabama, passed the House on Wednesday. An amendment in committee took the judicial branch out of the bill. However, the key portions of the bill would mandate government agencies to respond to a public records request within 10 business days and fulfill it within 20 days. Depending on the scope and breadth of the request, agencies are afforded 45 business days, plus an additional 15 business days for certain requests related to sensitive documents that may require redaction. The House changes must be approved by the Senate on the final legislative day next week to become law this year.

HB43 by Rep. Warren would change the process for admittance to first grade in Alabama’s schools. Currently, Kindergarten is not mandated for children in Alabama as it is in 18 other states. HB43 would require children who skip Kindergarten to show their readiness via a test as determined by the State Department of Education. If they do not demonstrate readiness, then that child must enroll in Kindergarten rather than first grade. The bill, which Rep. Warren has championed for many years, has been repeatedly stymied in the Senate.  As education officials note, the lack of reading proficiency by Alabama students, especially by the time they reach the third-grade level, vastly determines that student’s ability in later years to be at or above grade-level by the time they reach high school. The bill is pending in the Senate.

SB154 by Senators Barfoot and Coleman, was signed into law by Governor Ivey on Thursday. The bill would allow drivers to miss up to three payments on a payment plan for fines and fees before a judge could suspend their driver’s license. It also allows up to one missed court date. Prior to the bill’s enactment, those unable to pay their fines or fees would have their licenses suspended, which made it more difficult for them to get to work. Without the ability to work, individuals could not pay traffic fines.

The Legislature reconvened on Tuesday, June 6, for the final day of the 2023 Regular Session.

This update provided by the Economic Development Authority of Alabama.

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