PARCA’s How Alabama Taxes Compare, 2022 Edition, uses data published by the U.S. Census Bureau’s Annual Survey of State and Local Finances to compare tax revenues across the state. This most recent set of revenue and expenditure data cover state and local fiscal years ending between July 1, 2019, to June 30, 2020, identified as the fiscal year 2020. That means the state of Alabama’s data is from the fiscal year that ended September 30, 2019.
• In 2020, Alabama had the nation’s second-lowest state and local tax collections per capita.
• Alabama has the lowest per capita property tax collections in the nation.
• Alabama has among the highest sales tax rates in the U.S.
• Alabama is now the only state that allows state individual and corporate income taxpayers to fully deduct federal income taxes paid. That provides a tax advantage for high earners.
• Despite a recent change that provides some relief, Alabama begins taxing income at the lowest threshold in the U.S.
Alabama state and local taxes collections are low due to two factors: lower rates and a smaller resource base to tax. Alabama’s Per Capita Gross Domestic Product, the total value of all goods and services produced, ranks in the bottom five of states, meaning we have a lower resource base to tax. However, these other states make a greater tax effort and, thus, generate more money to provide services.
This gap between Alabama and other states will not be so obvious when newly elected lawmakers convene in March to craft budgets for FY 2024. A strong inflationary economy, high employment levels, and a flood of federal relief have supplemented state spending and stimulated record levels of state and local tax collections in the most recent year.
But as proposals are floated to make changes to tax rates, it’s important to understand the tax system in context, including a history of underinvestment compared to other states. Any changes should ensure adequate revenue, promote fairness and opportunity, and increase ease of collection and compliance.
How Alabama’s Taxes Compare, 2022 Edition, explores Alabama’s tax system in more depth and context.
Below are interactive versions of the charts in the report.