Research Areas
Alabama
The Facts on Alabama's Tax Climate
Last updated July 1, 2009
Here are some basic facts on Alabama's tax system and how it compares to other states:
Tax Freedom Day Arrives on April 2 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 2009, Alabama taxpayers had to work until April 2 (ranked 44th highest nationally), celebrating tax freedom a full 11 days before national Tax Freedom Day (April 13). Tax Freedom Days of neighboring states were: Tennessee, April 5 (ranked 36th nationally); Georgia, April 12 (ranked 17th nationally); Florida, April 9 (ranked 27th nationally); and Mississippi, March 28 (ranked 48th nationally).
Full study of Tax Freedom Day, nationwide and in each state
Alabama's State/Local Tax Burden Below Average
During the past three decades, Alabama's state and local tax burden has been consistently below average. Estimated now at 8.6% of income, Alabama's state/local tax burden percentage stands at 38th nationally, below the national average of 9.7%. Alabama taxpayers pay $3,144 per capita in state and local taxes.
Alabama's State-Local Tax Burden, 1977-present
Other States' State/Local Tax Burdens
Historical Chart Comparing All States' State/Local Tax Burdens from 1977 to 2008
Alabama's 2010 Business Tax Climate Ranks 19th
Alabama ranks 19th 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 (22nd), Georgia (29th), Florida (5th) and Mississippi (21st).
50-State Comparison of Business Tax Climates (data only)
2009 State Business Tax Climate Index, Sixth 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 30th highest among states levying an individual income tax. Alabama's 2006 individual income tax collections were $630 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 29th highest nationally. In FY2007, state-level corporate tax collections (excluding local taxes) were $110 per capita, which ranked 38th highest among states that tax corporate income.
50-State Table of Corporate Income Tax Rates
50-State Table of State and Local Corporate Income Tax Collections Per Capita and Per Household
50-State Table of State Corporate Income Tax Collections Per Capita
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 6%, but localities are permitted to levy their own high sales taxes. 2006 combined state and local general sales tax collections were $842 per person, which ranked 26th highest nationally. Alabama's gasoline tax stands at $0.209 per gallon (35th nationally), while its cigarette tax stands at $0.425 per pack of twenty (44th 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 Tax Collections Per Capita and Per Household
50-State Table of State and Local General Sales and Gross Receipts Tax Collections Per Household and Per Capita
Alabama Property Tax Collections Lowest in Nation
Alabama collects very little in property taxes compared to most other states. Alabama's localities collected $367.47 per capita in fiscal year 2006, the latest year for which the Census Bureau has released state-by-state data. The state government collected $54.63 per capita in property taxes, meaning Alabama's combined state and local property tax collection figure was $422.10
per capita in FY 2006—the lowest property tax collections 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
