If you sell groceries in Alabama, your point-of-sale did something unusual on May 1, 2026: it stopped collecting the state portion of sales tax on food. For two months — May 1 through June 30, 2026 — Act 2026-604 (House Bill 527) suspends the state's 2% sales and use tax on SNAP-eligible food, while city and county taxes on food remain. The holiday does not change what food is — it changes which tax applies for 61 days, and it requires you to still report the sales as if the tax were collected.
Here is the Alabama grocery tax history, what the holiday covers, and how retailers must ring and report it.
From 4% to 2% to 0% — Then Back to 2%
Alabama is one of the few states that still taxes groceries at the state level. Until 2023, the state rate on food was 4%. A landmark 2023 bill cut it by 1% to 3%, and a September 2025 step cut it again to the current 2% as of 2026. That 2% is the state portion that Act 2026-604 suspends — not a repeal, but a 61-day holiday that returns to 2% on July 1.
Local taxes are separate. City and county sales taxes on food — which in some jurisdictions add 1–4% — are not suspended. A grocery sale in a city with a 2% local food tax will ring as 2% local during the holiday, with the 2% state portion at 0%, for a combined 2% instead of the usual 4%.
What Qualifies as Food
The holiday uses the SNAP definition: food or food products intended for home consumption, minus exclusions. Generally qualifies: bread, milk, produce, meat, canned goods, and packaged foods. Generally does not qualify: alcoholic beverages, tobacco, hot foods, and foods prepared for immediate consumption. Hot rotisserie chicken, deli hot meals, and bakery items kept warm for immediate sale are taxable at the full rate even during the holiday — they are not SNAP-eligible.
If your POS cannot distinguish SNAP-eligible from prepared hot food, the holiday will be misapplied and the audit exposure will be on you, not the customer.
How Retailers Must Ring and Report
The Alabama Department of Revenue's notice is explicit: retailers must still report all gross sales of qualifying food items in total gross proceeds, even though the state tax on those sales is suspended. The return will show the gross sales and the exempt or tax-suspended breakout, with the state tax on food at zero for the holiday period.
Practically:
- Program the POS to tax food at the city/county rate only from May 1, with the state food rate at 0% — do not program food as fully exempt, because the local portion still applies where the locality taxes food.
- Keep the state-food and local-food taxability tables separate so the July 1 reversion is a single rate flip, not a full reprogramming.
- Retain the holiday-specific reporting workpaper: total gross sales, qualifying food sales, state tax suspended, and local tax collected. That paper is the first exhibit in an Alabama audit that covers May–June 2026.
For customers, signage that says "State grocery tax holiday — 2% state food tax suspended May 1–June 30" prevents the misunderstanding that all grocery tax is gone.
A Note on the Other Piece of Act 2026-604
The same act creates, for tax years 2026–2028, an individual income tax deduction of up to $1,000 for qualified overtime compensation, effective October 1 — a separate provision that does not affect the sales tax holiday but that employers should note for payroll.
Simplify Your Financial Management
A two-month tax holiday feels like a price cut to the customer and a reporting exercise to the retailer — and the reporting is what survives the audit. Beancount.io keeps every POS taxability table, every gross sales breakout, and every state-vs-local collection in plain-text, version-controlled accounting — so your May–June 2026 food sales tie to the return, not just to the register tape. Get started for free and keep your point-of-sale and your sales tax return aligned.