Alabama had the nation’s second-lowest tax collections per capita in 2019. Only Tennessee had lower state and local tax revenue per resident than Alabama.
Since the early 1990s, Alabama had the lowest tax collections in the U.S. But beginning in 2018, tax cuts in Tennessee and economic growth in Alabama caused Tennessee to dip below Alabama in per capita collection.
During the period, Alabama’s economic growth has been strong. Between 2018 and 2020, per capita personal income in Alabama grew faster than it did in Tennessee. By late 2019 Alabama was experiencing its lowest unemployment rate ever. On top of that, the state’s labor force participation rate had improved, bringing more workers into the workforce. Meanwhile, Tennessee is in the process of phasing out what remains of its small income tax. It has also reduced its sales tax rate on groceries.
Despite outpacing Tennessee, Alabama still trails far behind other Southeastern states in the amount of state and local taxes collected per resident, which partially explains why Alabama struggles to provide the same level of public services as other states.
PARCA’s 2021 edition of How Alabama Taxes Compare describes Alabama’s tax system and how it compares with tax systems in other states, based on the latest data available from the U.S. Census Bureau and the Bureau of Economic Analysis.
In addition to the PDF version of the report, the interactive charts below allow you to explore the data on your own. For better viewing, expand to the full-screen view by clicking on the button on the bottom right of the display below. Navigate through the story of Alabama taxes using the tabs at the top of the interactive display.