Alabama Governor Kay Ivey signed the bill (HB 163) on 14 May 2025, which decoupled Alabama from the federal Tax Cuts and Jobs Act (TCJA) treatment of research and experimental (R&E) expenditures. On the same day, the governor also signed a bill (HB 386), which reduced the state sales tax on groceries.
Decoupling from federal R&E expenditure deduction
HB 163 allows Alabama taxpayers to deduct R&E expenses in the year incurred or defer them under the TCJA. From 1 January 2022, the TCJA requires R&E costs to be capitalised and amortised over five years for domestic research and 15 years for foreign research.
Under HB 163, Alabama will not follow these federal rules for tax years starting on or after 1 January 2024. HB 163 takes effect immediately.
Reduction in grocery sales taxes
HB 386 lowers the state’s sales tax on groceries from 3% to 2%, starting 1 September 2025. The rate was reduced from 4% to 3% in 2023 under HB 479. Additionally, HB 386 allows local governments to lower sales taxes on food if their general fund revenue grows by over 2% from the previous year.
HB 386 goes into effect on 1 June 2025.
