The Public Affairs Research Council of Alabama has released the 2025 edition of its long-running report, “How Alabama Taxes Compare,” offering a detailed look at how Alabama’s tax system compares to other states. The analysis shows that Alabama continues to collect significantly less in taxes per resident than most of the nation, while also relying more heavily on regressive forms of taxation than many of its peers.
Using the most recent state and local finance data, fiscal year 2023, the report finds that Alabama’s combined state and local tax collections totaled $4,930 per resident. That represents a modest increase of about 3.8 percent over the previous reporting period but still places Alabama near the bottom nationally. Only two states collected less per resident, leaving Alabama well below the national median of $6,524 per capita.
The report notes that Alabama’s low collections are driven by a combination of comparatively low tax rates and a smaller economic base. Income levels and overall economic output in Alabama remain below national averages, which limits the amount of revenue that can be generated, even when taxes are applied consistently.
When measured as a share of personal income, Alabama ranks 38th among the states, with state and local taxes amounting to roughly 9 percent of income, compared to a national average closer to 10 percent.
“The states ranked below Alabama have higher personal income per capita than Alabama, so despite collecting less as a percentage of total personal income, they raise more revenue per capita than Alabama. They can produce higher tax revenues with less tax effort,” the report reads.
A central finding of the 2025 study is that Alabama’s tax structure remains highly imbalanced. Property taxes are the lowest in the nation, largely due to constitutional limits on assessments and rates, as well as generous exemptions. While this keeps property tax bills low for homeowners and landowners, it also restricts the ability of local governments to fund schools, infrastructure and public services.
Nationally, property taxes make up about 29 percent of state and local revenue and primarily fund schools and local governments, but in Alabama they account for just 16 percent, increasing the state’s reliance on sales taxes.
When state and local sales taxes are combined, Alabama’s rates are among the highest in the country. Across the country, local governments receive only 19 percent of local revenue from sales tax, but Alabama receives 50 percent of it’s local revenues from sales tax.
This heavy reliance on consumption taxes makes the overall system more regressive, placing a relatively greater burden on lower-income households who spend a larger share of their income on taxable goods.
The report also examines Alabama’s individual income tax, which is technically graduated but reaches its top rate at relatively low income levels. Most taxpayers move quickly into the highest bracket. Alabama also remains the only state that allows a full deduction for federal income taxes paid, a provision that primarily benefits higher-income filers and reduces state revenue.
“The deductibility of the federal income tax also creates unintended consequences. When federal taxes go down for individuals, their state taxes go up. The income tax rate and the deductibility of federal income taxes are both embedded in the Alabama Constitution, so any change to the rate would require an amendment,” the report reads.
The 2025 edition of “How Alabama Taxes Compare” concludes that Alabama’s low-tax environment presents both opportunities and challenges. While lower taxes can be appealing to businesses and residents, they also squeeze the state’s ability to invest in education, healthcare, infrastructure and workforce development. The state’s reliance on sales taxes and minimal use of property taxes increases vulnerability to economic downturns and limits long-term fiscal stability.
