Hoover council considers reducing city sales tax on groceries

The Hoover City Council is considering reducing the city’s sales tax on groceries by half a percentage point from 3.5% to 3%.

A first reading of the ordinance is expected tonight, and the matter is scheduled to be voted on at the Oct. 2 council meeting. If it were to pass, it would go into effect a year later — on Oct. 1, 2024.

Hoover Councilman Casey Middlebrooks, who introduced the measure at a council work session Thursday, said Hoover has enjoyed strong revenues the past few years and city leaders want to provide some inflation relief.

“It’s no secret that inflation has impacted families,” Middlebrooks said. “We think this is a good opportunity to give a little bit back to our community.”

The tax reduction is expected to cost the city about $1.67 million in fiscal 2025 — the first year it would be in effect, based on information in a study conducted for the city by Keivan Deravi, a retired economics professor at the Auburn University at Montgomery who does consulting work as Economic Research Services.

The study predicts that spending on groceries in Hoover should reach $334 million in 2025, or $3,531 per resident, assuming a 4% inflation rate. Under the current city sales tax rate of 3.5%, that would generate about $11.7 million in tax revenue for the city in 2025, but a 3% tax rate would generate about $10 million.

It's likely that people would spend some of their tax savings buying more groceries or other retail items, so the negative impact on tax revenues could be less than $1.67 million.

The Alabama Legislature in June agreed to reduce the state portion of sales taxes on groceries from 4% to 3% as of Sept. 1 this year, and to 2% on Sept. 1, 2024, as long as revenues for the state Education Trust Fund grow by 3.5%. The Legislature authorized municipalities to reduce their sales taxes on groceries in 25% increments in any year when their local revenue exceeds 2% over the previous year. However, any change must be approved at least 60 days before the beginning of a new fiscal year on Oct. 1. That is why Hoover’s ordinance now cannot take effect until Oct. 1, 2024, if it passes next month.

The reduction in Hoover sales taxes on groceries would amount to an average savings of $17.65 per Hoover resident per year.

“It doesn’t sound like much, but when you combine them all [state and municipal reductions], every little bit adds up,” Middlebrooks said. “For some families, every dollar is counted.”

The last change in the Hoover sales tax rate occurred in October 2018, after the City Council raised the rate from 3% to 3.5%. That put the overall sales and use tax rate at 8.5% in the Shelby County part of Hoover and 9.5% in the Jefferson County part of Hoover.

Following the Sept. 1 change at the state level, the current overall sales and use tax rate on groceries is 7.5% in the Shelby County part of Hoover and 8.5% in the Jefferson County part of Hoover.

However, sales taxes on items other than groceries have not been impacted. Total sales taxes on other items in Hoover remain at 8.5% in the Shelby County part of Hoover and 9.5% in the Jefferson County part of Hoover.

The state legislation that passed this year follows the same definition for groceries as the federal Supplemental Nutrition Assistance Program, better known as SNAP. SNAP foods include fruits, vegetables, meat, poultry, fish, dairy, breads, cereals, snack foods, non-alcoholic beverages and the seeds and plants that produce food.

The amount of revenue Hoover receives from sales and use taxes (of all kinds) has increased from $60.5 million in fiscal 2012 to $106 million in fiscal 2022, records show. City officials fully expect to exceed that dollar amount this fiscal year, which ends Sept. 30.