HB386 Alabama 2025 Session

Updated Feb 23, 2026

High Interest

Summary

Primary Sponsor: Danny GarrettRepresentative
Republican
Session: 2025 Regular Session
Title: Sales and use tax on food, state rate reduced, counties and municipalities authorized to reduce
Summary: HB386 would cut the state food tax to 2% by Sept 1, 2025 (if revenue growth targets are met) and remove local limits on how much food taxes can be cut, giving counties and municipalities more freedom to adjust their rates.
What This Bill Does
The state rate on food is lowered from 4% to 2% on Sept 1, 2025, but this depends on meeting a growth target for Education Trust Fund receipts; if the target isn’t met, the reduction would occur later when growth is satisfied. Local governments would no longer be bound by previous caps or growth-trigger rules for reducing their food taxes and may adjust downward more freely, though increases would be limited to the rate in effect on June 15, 2023. The bill also creates an export-related provision for motor vehicle sales, imposing a 2% Alabama tax on vehicles exported within 72 hours (excluding county/municipal tax), with 58% of the revenue going to the Education Trust Fund and 42% to the State General Fund, and requires documentation for eligibility. The act becomes effective June 1, 2025, with the state food tax reduction taking effect later in 2025 per the schedule above.

Who It Affects
State residents buying food in Alabama would pay a lower state food tax (from 4% toward 2%), subject to growth targets and timing
County and municipal governments in Alabama would gain broader authority to reduce food taxes (no longer limited by growth or a 25% cap) and could adjust rates up to the 2023 local rate maximum

Key Provisions
State food tax reduction: The state sales and use tax rate on food would be reduced to 2% on September 1, 2025, contingent on the average growth in Education Trust Fund receipts meeting a specified target; if not met, the reduction would occur in a future year when growth is satisfied
Local control on food taxes: Counties and municipalities may reduce their general/retail food tax rates without the prior growth requirement or cap, and may later increase the rate but not above the rate in effect on June 15, 2023
Export vehicle sales tax: A 2% Alabama tax applies to motor vehicle sales exported from Alabama within 72 hours, with 58% of the tax money going to the Education Trust Fund and 42% to the State General Fund, and the tax excludes county/municipal taxes; requires documentation for eligibility
Effective date: The act becomes effective June 1, 2025; the state food tax reduction would take effect on the dates described above, with local changes applying per the new rules

AI-generated summary using openai/gpt-5-nano on Feb 22, 2026. May contain errors — refer to the official bill text for accuracy.
Subjects: Taxation & Revenue