Alabama’s state and local tax collections rank at or near the bottom of every state in the United States, according to a new report by the Public Affairs Research Council of Alabama.
PARCA’s latest report, How Alabama Taxes Compare, 2023 Edition, studies tax collection data published by the U.S. Census Bureau’s Annual Survey of State and Local Finances. The Census Bureau’s most recent revenue and expenditure data covers state and local fiscal years ending between July 1, 2020, and June 30, 2021. That means the state of Alabama’s data is from the fiscal year that ended September 30, 2020.
Over that period, the state collected $4,237 per resident, $481 more than the year prior. Nationally, the median value was $5,385 per capita, $1,196 more per person than Alabama. The average per capita total in the Southeast was $4,556, $319 per person higher than Alabama. Mississippi collects $204 more per capita than Alabama. Only Alaska collected fewer dollars per capita than Alabama over this review period.
“Most state and local tax revenue can be grouped into one of three categories: property taxes, sales taxes, and income taxes,” said Ryan Hankins, the executive director of the Public Affairs Research Council of Alabama. “Ideally, the state would draw an equal amount from these sources, but that is not true in Alabama. Alabama has the country’s lowest per capita property tax collections; it starts taxing income earlier than every other state; and it has among the highest sales tax rates in the U.S. This means the state’s poorest residents shoulder a higher tax burden than their wealthy counterparts.”
Looking more closely at the data, Alabama collected more taxes per capita on alcoholic beverages and public utilities than most other states. The state ranked second and fifth, respectively. Conversely, the state collected the nation’s lowest property tax collections per capita. It was also ranked among the bottom ten states for motor vehicle license collections. Alabama was ranked near the middle of states in most other categories PARCA reviewed.
The PARCA report released today comes on the heels of its recent examination of the various revenue sources from which the state collects funding to operate its government services each year, Alabama State Tax Collections, 2023. Taken together, both reports provide a glimpse into how effectively the state can fund government services compared to its neighbors.
“Alabama’s tax and revenue collections were inflated in recent years due to the influx of federal stimulus funds and other resources meant to remediate COVID losses. These rates are not likely to be seen again,” said Thomas Spencer, PARCA’s Senior Research Associate. “Our tax system is set up to produce lower tax revenues per capita than other states. As normal economic conditions return, the question remains: Will Alabama be able to collect enough funding to pay for the government services it has promised residents?”