Oklahoma will stop collecting state sales tax on groceries under a bill signed into law Tuesday by Gov. Kevin Stitt, who said he is still seeking a reduction in personal income taxes.

The elimination of the 4.5% sales tax, which will cost the state around $400 million annually, was overwhelmingly passed by lawmakers.

The Republican governor called the measure the largest single-year tax cut in Oklahoma history. 

“By cutting the state’s portion of the grocery tax we’re going to be delivering on real relief for real Oklahoma families,” he said at the bill’s signing event, where he reiterated his call for a quarter-point drop in the income tax rate, which tops out at 4.75%. Tax cuts in special legislative sessions called by Stitt failed to advance.

Stitt said the state can accommodate some growth in government spending, while pursuing a path to eliminating the personal income tax, which is Oklahoma’s second largest tax revenue source after the sales tax. 

“We would never put Oklahoma in a bad situation,” he said. “We know we have core services, we know we have roads and bridges, we have infrastructure, but we need limited government.”

Additional tax cuts this legislative session are unlikely. Republican Senate President Pro Tempore Greg Treat said House Bill 1955 was the maximum tax relief his chamber would support this year in the wake of a State Board of Equalization revenue certification adopted Feb. 15.

The certification pegged recurring revenue at $11.1 billion in fiscal 2025, which begins July 1, up about $542 million from fiscal 2024’s appropriation authority.  It also showed the state had $1.675 billion in reserve funds and $2.4 billion in unspent cash. 

The grocery tax elimination comes as Oklahoma taxes are generating less than in the prior fiscal year. For the first seven months of fiscal 2024, general revenue fund collections of $4.9 billion were down 4.4% from the same period in fiscal 2023, while rising 4.3% above estimates.

Earlier this month, Oklahoma received its third positive rating outlook. Fitch Ratings’ revision to positive from stable on the state’s AA rating followed similar moves last year by S&P Global Ratings and Moody’s Investors Service.