States Stubbornly Hold on to Grocery Taxes

Nine states recently considered changes to their grocery taxes that would have modified, reduced or eliminated taxes on basic food items. These taxes tend to disproportionately impact lower income families who spend a higher portion of their monthly income on food staples. Since food taxes have become a consistent source of revenue in many states, however, state legislatures have become reluctant to alter current tax policies on food items. As a result, instead of eliminating or reducing food taxes, a number of states instead elected to tweak state tax provisions instead of reducing or eliminating the taxes. Thus, states have elected to in some cases to put tax reductions on the ballot (Utah), provide food tax credits (Hawaii) or add state grocery tax holidays (Tennessee). One exception to this rule was Alabama, which decided to reduce its grocery tax rate beginning in the fall of 2025.

Key takeaway

In addition to differences in existing state taxes on food and beverages, restaurant meals and take-out food orders, common grocery store items like drugs and medicines may be subject to specific tax rules and exemptions. Most US states exempt grocery items from state tax but not all do. Accordingly, grocery retailers must remain mindful of the different tax treatment from state to state, of common items sold in multiple jurisdictions.