Low Taxes (Continued)
Enjoy the tens of thousands of acres of lakes, the rivers, and the Gulf of Mexico, boats and other personal property are tax-exempt in Alabama. Boat trailers are also tax-free, and do not even require a tag in Alabama.
Prescription drugs are exempt in Alabama.
The low taxes aren't just for enjoying living. Alabama has a very friendly tax environment for business too. For more tax exemptions click here.
Alabama Tax Rates
Sales Taxes
State Sales Tax: 4% (prescription drugs exempt); The rate can go as high as 12.0% depending on city and county taxes. The state administers over 200 different city and county sales taxes; however, it does not administer all county or city sales taxes. View municipal sales taxes
Gasoline Tax: 21.3 cents/gallon
Diesel Fuel Tax: 22.7 cents/gallon
(Local option taxes on fuel may add up to 3 cents.)
Cigarette Tax: 42.5 cents/pack of 20
Personal Income Taxes
Tax Rate Range: Low - 2.0%; High - 5.0%
Income Brackets: *Lowest - $500; Highest - $3,000
Number of Brackets: 3
Personal Exemptions: Single - $1,500; Married - $3,000; Dependents - $300
Standard Deduction: Single - $2,000; Married filing joint return - $4,000
Medical/Dental Deduction: Limited to excess of 4% of adjusted gross income
Federal Income Tax Deduction: Full
Retirement Income Taxes: Social Security, military, civil service, state/local government and qualified private pensions are exempt. All out-of-state government pensions are tax-exempt if they are defined benefit plans.
Retired Military Pay: Pay and survivor benefits not taxed.
Military Disability Retired Pay: Disability Portion - Length of Service Pay; Member on September 24, 1975 - No tax; Not Member on September 24, 1975 - Taxed, unless combat incurred. Retired Pay - Based solely on disability: Member on September 24, 1975 - No tax; Not Member on September 24, 1975 - Taxed, unless all pay based on disability and disability resulted from armed conflict, extra-hazardous service, simulated war, or an instrumentality of war.
VA Disability Dependency and Indemnity Compensation: Not subject to federal or state taxes
Military SBP/SSBP/RCSBP/RSFPP: Generally subject to state taxes for those states with income tax. Check with state department of revenue office.
Property Taxes
The state does not collect taxes on personal property such as boats and computers. Its ad valorem (property tax) is 6.5 mills (http://216.226.178.107/Taxincentives/proptaxincentives.html). Each city and county may levy has its own millage rate. For information on all ad valorem tax exemptions, click here. Homeowners 65 and older are exempt from all county property taxes. Some cities also assess separate property taxes. A homestead exemption up to $5,000 of assessed value is granted by the state on real property taxes. A larger exemption is available to persons over 65. Visit state's property tax division web site.
Inheritance and Estate Taxes
There is no inheritance tax and the estate tax is limited to federal estate tax collection.
For further information, visit the Alabama Department of Revenue site or call 334-242-1170.
* For joint returns, the taxes are twice the tax imposed on half the income.
It is 48th in the nation in state and local revenue as a percentage of personal income, its property taxes are the lowest in the nation.
The Facts on Alabama’s Tax Climate
Here are some basic facts on Alabama’s tax system and how it compares to other states:
Tax Freedom Day Arrived on April 12th in Alabama
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2007, Alabama taxpayers had to work until April 12th (ranked 49th highest nationally), celebrating tax freedom a full 18 days before national Tax Freedom Day (April 30th). Tax Freedom Days of neighboring states were: Tennessee, April 15th (ranked 46th nationally); Georgia, April 22nd (ranked 31st nationally); Florida, May 2nd (ranked 12th nationally); and Mississippi, April 13th (ranked 48th nationally).
Full study of Tax Freedom Day, nationwide and in each state
Alabama's State/Local Tax Burden Among Nation's Lowest
During the past three decades, Alabama’s state and local tax burden has held consistently as one of the lowest in the nation. Estimated now at 8.8% of income, Alabama’s state-local tax burden percentage stands at 46th nationally, well below the national average of 11.0%. Alabama taxpayers pay $3,090 per capita in state and local taxes, and per capita state income is $35,007.
Alabama's State-Local Tax Burden, 1970-present
Alabama’s 2008 Business Tax Climate Ranks 21st
Alabama ranks 21st in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: Tennessee (16th), Georgia (20th), Florida (5th) and Mississippi (18th).
50-State Comparison of Business Tax Climates
Alabama’s Individual Income Tax System
Alabama’s personal income tax system consists of three separate brackets with a top rate of 5% kicking in at an income level of $3,000. That top rate ranks 32nd highest among states levying an individual income tax. Alabama’s 2004 individual income tax collections were $518 per person, which ranked 37th highest nationally.
50-State Table of Individual Income Tax Rates
Alabama’s Corporate Income Tax System
Alabama’s corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Alabama’s rate ranks 31st highest nationally. In 2004 corporate tax collections were $65 per capita, which ranked 33rd highest among states that tax corporate income.
50-State Table of Corporate Income Tax Rates
Alabama Sales Tax Below National Median; Gas and Cigarette Taxes Also Low
Alabama levies a 4% general sales or use tax on consumers, which is below the national median of 5%, but localities are permitted to levy their own high sales taxes. 2004 combined state and local general sales tax collections were $710 per person, which ranked 32nd highest nationally. Alabama’s gasoline tax stands at 18.0 cents per gallon (38th nationally), while its cigarette tax stands at $0.425 per pack of twenty (39th nationally). Additionally, municipalities in Alabama have the authority to levy their own "local option" taxes on gasoline. These local gas taxes range from 0.5 to 4 cents per gallon. The sales tax was adopted in 1936, the gasoline tax in 1923 and the cigarette tax in 1935.
50-State Table of Sales and Excise Tax Rates
Alabama Property Taxes Very Low
Alabama collects very little in property taxes compared to most other states. Alabama's localities collected $1,440,385,000 in fiscal year 2004, the latest year for which the Census Bureau has released state-by-state data. The state government collected 221,470,000 in property taxes, meaning Alabama's combined state and local property tax collection figure was $1,440,385,000 in FY 2004. That amounts to a per capita collection of $367, which is the lowest property taxes in the nation.
State property tax collections per capita by state
Federal Tax Burdens and Expenditures: Alabama is a Beneficiary State
Alabama taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of federal tax collected in 2005, Alabama citizens received approximately $1.66 in the way of federal spending. This ranks the state 7th highest nationally and represents a rise from 1995 when Alabama received $1.33 per dollar of taxes in federal spending (ranked 9th nationally). Neighboring states and the amount of federal spending they received per dollar of federal taxes paid were: Tennessee ($1.27), Georgia ($1.01), Florida ($.97) and Mississippi ($2.02).
Comparing the amount of federal taxes sent to Washington with the amount of federal spending coming back to the state
Tax Data from The Tax Foundation
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