The Tax Foundation

Research Areas

Alabama

The Facts on Alabama’s Tax Climate

Here are some basic facts on Alabama’s tax system and how it compares to other states:

Tax Freedom Day Arrives on April 9 in Alabama
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2008, Alabama taxpayers had to work until April 9 (ranked 46th highest nationally), celebrating tax freedom a full 14 days before national Tax Freedom Day (April 23). Tax Freedom Days of neighboring states were: Tennessee, April 11 (ranked 44th nationally); Georgia, April 19 (ranked 23rd nationally); Florida, April 26 (ranked 9th nationally); and Mississippi, April 7 (ranked 49th nationally).

Tax Freedom Day has been projected using the most up-to-date economic and budget projections from official government agencies. However, Tax Foundation estimates of average state and local tax rates for 2008 will not be released until later this spring as we await more up-to-date data from various government agencies.
Full study of Tax Freedom Day, nationwide and in each state

Alabama's State/Local Tax Burden Among Nation's Lowest in 2007
During the past three decades, Alabama’s state and local tax burden has held consistently as one of the lowest in the nation. Estimated now at 8.8% of income, Alabama’s state-local tax burden percentage stands at 46th nationally, well below the national average of 11.0%. Alabama taxpayers pay $3,090 per capita in state and local taxes, and per capita state income is $35,007.
Alabama's State-Local Tax Burden, 1970-present

Alabama’s 2008 Business Tax Climate Ranks 21st
Alabama ranks 21st in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: Tennessee (16th), Georgia (20th), Florida (5th) and Mississippi (18th).
50-State Comparison of Business Tax Climates (data only)
2008 State Business Tax Climate Index, Fifth Edition (full study)

Alabama’s Individual Income Tax System
Alabama's personal income tax system consists of three separate brackets with a top rate of 5% kicking in at an income level of $3,000. That top rate ranks 34th highest among states levying an individual income tax. Alabama's 2005 individual income tax collections were $581 per person, which ranked 36th highest nationally.
50-State Table of Individual Income Tax Rates
50-State Table of State Individual Income Tax Collections
50-State Table of State and Local Individual Income Tax Collections Per Capita

Alabama’s Corporate Income Tax System
Alabama's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Alabama's rate ranks 30th highest nationally. In 2006, state-level corporate tax collections (excluding local taxes) were $121.50 per capita, which ranked 33rd highest among states that tax corporate income.
50-State Table of Corporate Income Tax Rates, 2000-2008
50-State Table of State and Local Corporate Income Tax Collections Per Capita and Per Household, 2005
50-State Table of State Corporate Income Tax Collections Per Capita, 2006

Alabama Sales Tax Below National Median; Gas and Cigarette Taxes Also Low
Alabama levies a 4% general sales or use tax on consumers, which is below the national median of 5.4%, but localities are permitted to levy their own high sales taxes. 2005 combined state and local general sales tax collections were $1,263 per person, which ranked 22nd highest nationally. Alabama's gasoline tax stands at 20.2 cents per gallon (35th nationally), while its cigarette tax stands at $0.425 per pack of twenty (41st nationally). Additionally, municipalities in Alabama have the authority to levy their own "local option" taxes on gasoline. The sales tax was adopted in 1936, the gasoline tax in 1923 and the cigarette tax in 1935.
50-State Table of Sales and Excise Tax Rates
50-State Table of State and Local General Sales and Gross Receipts Tax Collections Per Household and Per Capita, Fiscal Year 2005

Alabama Property Taxes Very Low
Alabama collects very little in property taxes compared to most other states. Alabama's localities collected $1,440,385,000 in fiscal year 2004, the latest year for which the Census Bureau has released state-by-state data. The state government collected 221,470,000 in property taxes, meaning Alabama's combined state and local property tax collection figure was $1,440,385,000 in FY 2004. That amounts to a per capita collection of $367, which is the lowest property taxes in the nation.
State property tax collections per capita by state

Federal Tax Burdens and Expenditures: Alabama is a Beneficiary State
Alabama taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of federal tax collected in 2005, Alabama citizens received approximately $1.66 in the way of federal spending. This ranks the state 7th highest nationally and represents a rise from 1995 when Alabama received $1.33 per dollar of taxes in federal spending (ranked 9th nationally). Neighboring states and the amount of federal spending they received per dollar of federal taxes paid were: Tennessee ($1.27), Georgia ($1.01), Florida ($.97) and Mississippi ($2.02).
Comparing the amount of federal taxes sent to Washington with the amount of federal spending coming back to the state

Articles from the Tax Foundation