How Alabama Taxes Compare, 2018 Report

Alabama’s state and local governments collect less per capita in taxes than state and local governments in any other state in the union, according to new data from the U.S. Census Bureau.

Annually, the U.S. Census Bureau surveys state and local governments across the country about their revenues and expenditures. This survey makes it possible to compare the finances of state and local government across the 50 states. In PARCA’s analysis of the data, How Alabama Taxes Compare, state and local revenues are considered together, because states vary greatly in how they divide up the responsibilities between state and local governments for financing the operation of services like schools, roads, courts, health care, and public safety. In the end, the combined revenue from state and local taxes is used to provide government services. The data for 2016 is the most recent year available.[1] An interactive version of the data is also available through PARCA’s data dashboard.

Rank in Per Capita Tax Collections, 2016

State and Local Tax SourcesAlabama's Rank Among U.S. States
All Taxes50
Property50
Individual Income36
Corporate Income40
Sales and Gross Receipts29
General Sales30
Selective Sales17
- Alcoholic Beverage3
- Public Utilities5
- Motor Fuel34
- Tobacco Products35
- Other Selective Sales32
Motor Vehicle License45
Other Taxes25

The most glaring difference between Alabama and other states is our low reliance on property taxes.

  • Alabama ranks 50th in the U.S. in state and local property tax collections per capita.

If Alabama’s per capita property tax collections matched the average of other Southeastern states:

  • State and local governments would have an additional $2 billion to spend providing services.
  • Alabama’s overall tax revenue per capita would rank in the middle of Southeastern states, roughly equaling Mississippi’s tax revenue per capita and putting Alabama above Florida, South Carolina and Tennessee in per capita collections. Alabama would still trail Arkansas, North Carolina, Louisiana, Kentucky, and Georgia.

As it stands, Alabama’s traditional preference for low property taxes leaves state and local governments more reliant on other taxes for revenue. Alabama has among the highest sales tax rates in the U.S. Alabama also has some of the highest taxes per capita on alcohol and public utilities. Despite those higher rates, Alabama doesn’t make up the difference created by its low property tax collections.

Other unusual features of Alabama’s tax system include:

Sales Taxes:

  • Alabama is one of three states that continue to apply sales tax fully to food purchased for home consumption without providing any offsetting relief for low- and moderate-income families.
  • Alabama’s sales tax is not as broad as other states and doesn’t apply to most services. Consequently, despite high rates, Alabama’s sales tax isn’t as productive as some other states.

Income Taxes:

  • Alabama threshold for taxing income is the lowest in the nation. Most states set a higher income threshold than Alabama in order to allow poor households to keep more of the money they earn.
  • Alabama is one of three states that allows taxpayers to deduct from state income the full amount they pay in federal income taxes. Since federal income tax rates are higher the more you earn, the higher your earnings the larger the deduction for state tax purposes.

As a bottom line, Alabama governments operate with less revenue on a per capita basis than governments in all the other states.

This is not a new finding. This has been true since the early the 1990s. And it underlies the difficulties we face when trying to provide to our citizens the level of government services enjoyed by citizens in other states.

[1] U.S. Census Bureau State & Local Government Finance. (2016 data released on Sept. 7, 2017). Retrieved November 1, 2018 from https://www.census.gov/programs-surveys/gov-finances.html

To read the full report, How Alabama Taxes Compare, click here.