Alabama may soon exempt diapers, feminine hygiene products from state sales tax (2025)

Alabama families could pay less for some household necessities under proposals sponsored by lawmakers in both parties.

The bills would remove the state sales tax from diapers, baby formula, baby bottles, baby wipes, breast pumps, maternity clothing, and feminine hygiene products.

The state sales tax is 4%.

Sen. Arthur Orr, R-Decatur, chairman of the education budget committee in the Senate, said the exemption would make the sales tax more fair.

“The legislation is important because these are have-to expenses certainly for women and for new families that have to purchase diapers and baby bottles and baby supplies,” Orr said.

“And Alabama wants to be a state that supports families. So this would be a small way the state could help those families with the additional expenses that they have with children.

“On the hygiene products, that’s a have-to and we shouldn’t tax something that 50% of the population has to purchase while the other 50% does not.”

Rep. Neil Rafferty, D-Birmingham, is sponsoring the bill in the House. Rafferty’s bill has co-sponsors from both parties.

Under Rafferty’s bill, the tax exemption would take effect Sept. 1 and expire three years later.

Cities and counties would still collect their sales taxes on the products unless they voted to adopt the exemption.

“This is important because this is a very small amount when we’re talking about its effect on the budget,” Rafferty said. “But it has a huge impact for young families that are trying to make ends meet, that need to buy their first home, that have to pay for their electricity bills, for their grocery bills.”

“It’s not like it’s a luxury product that we’re removing the tax from. It’s things that people absolutely need.”

Orr and Rafferty sponsored similar bills last year, but they did not pass.

Sales taxes support public education.

Orr said there were concerns last year about the impact of the exemption on the Education Trust Fund because the Legislature also approved tax credits for child care and housing. as part of a package of bills intended to increase workforce participation.

This year, Orr said he believes the Education Trust Fund can absorb the tax exemption, which would reduce funding to the ETF by an estimated $10.5 million a year.

That’s only slightly more than one-tenth of 1% of the annual ETF budget, which topped $9 billion this year.

But that does not mean the tax exemption is a sure thing.

Orr said lawmakers face a decision on whether to keep a state income tax exemption on overtime pay that was in effect for the first time last year.

The overtime exemption was a popular idea supported by both parties. But the Alabama Department of Revenue estimates the exemption reduced revenues to the Education Trust Fund by $230 million from January through September last year, far more than initially expected.

The overtime tax exemption is scheduled to expire June 30, 2025, a provision added to the bill because of the uncertainty over how much it would affect school revenues.

House Minority Leader Anthony Daniels, D-Huntsville, who sponsored the overtime exemption bill, wants to see the exemption made permanent because he said the economic benefits exceed the reduction in revenue - allowing workers to keep more of their pay and providing an incentive that has helped boost employment.

Orr said the tax exemption on diapers and baby products is unlikely to pass if lawmakers extend the exemption on overtime pay.

“The unknown right now is the overtime tax exemption,” Orr said. “If that gets continued, I would say it would probably jeopardize this bill from ultimately passing.”

If lawmakers decide to let the overtime tax exemption to expire, Orr said the Legislature might consider cutting another penny off the state sales tax on food.

In 2023, lawmakers approved a bill reducing the state sales tax on food from 4% to 3%. The bill called for another automatic reduction to 2% if average estimated revenue growth tax for the next fiscal year was at least 3.5%, as certified by the finance director and legislative fiscal officer. The estimates have not met that threshold, so the state sales tax on food remains at 3%.

Orr said legislators could propose dropping the tax on food to 2% without waiting on the revenue growth estimates as a triggering mechanism.

Each percentage point drop in the food tax reduces the sales tax revenue by about $150 million.

Orr mentioned two other possible tax cuts.

One would increase a tax exemption for people 65 and older.

It would raise from $6,000 to $10,000 the amount of withdrawals from IRAs and 401k accounts that are exempt from the state income tax.

Another possibility, Orr said, is a reduction in the state income tax rate, which is 5%. Orr noted that Tennessee and Florida have no state income tax.

“All these are being discussed,” Orr said. “And the thinking is, how can we make a meaningful impact in the lives of most Alabamians?

“And the easy answer to that is the grocery tax. But these others are in play as well. But I don’t think we do several of them.

“If we do the grocery tax, it might be that plus the hygiene products bill, which is only 10 million.”

Orr said he expects legislators to narrow down their choices after taking spring break in March.

The legislative session, which lasts until May, resumes on Tuesday.

This story was updated to add comments from Rep. Rafferty. This story was edited to correct the explanation of how revenue estimates for the Education Trust Fund can trigger a reduction in the sales tax on food.