PARCA Issues 25th Anniversary Report: How Alabama’s Taxes Compare

by Bradley Arant Boult Cummings LLP

The well-respected Public Affairs Research Council of Alabama (PARCA), headquartered at Samford University in Birmingham, has issued its 25th anniversary report, How Alabama’s Taxes Compare, which discusses the sources and uses of taxes in Alabama. The somewhat controversial report reveals that the state collects fewer taxes per resident than any other state, which state economic developers view as a positive. It also shows that Alabama has the lowest per capita tax collections of any state.

In addition to the low per capita tax collections, the report highlights the unusual composition of tax revenue collected (outlined below), noting that Alabama’s budgeting process is especially daunting because of the state’s constitutional earmarking of almost 90% of its tax revenues. Tom Spencer, senior research associate at PARCA, summarizes the current regime, stating that “Alabama’s tax system is, to a large extent, frozen because of the scarcity of resources and because of earmarking.”

Alabama’s Per Capita Tax Collections are the Lowest in the United States

When the report was first issued in 1988, Alabama ranked 48th in taxes collected per resident. The state quickly moved into last (or first) place, depending on one’s perspective, and has held that spot ever since. According to PARCA, two primary factors — politics and economics — contribute to the state’s low tax collections.

Alabama has relatively low tax rates. Even during the more than 100 years of Democratic control of the state legislature, legislators were skeptical of raising taxes and risking the wrath of the electorate. That reign ended in 2010. However, despite the political popularity of “no new taxes” pledges in Alabama, the state isn’t at the bottom of the list when it comes to taxes as a percent of gross state product. While Alabama is still below average in the southeastern United States in that regard, it is actually fairly close to the middle of the pack regionally.

State’s Tax Revenues Have an Unusual Composition

According to the report and its predecessors, Alabama levies its taxes in a way that puts the burden more squarely on certain groups of people. The report concludes that Alabama has the lowest state and local property taxes per capita in the nation. Those low rates combine with extensive exemptions for homestead property and low assessment rates for farm and timberland property. Although property taxes generally tend to be progressive in nature, the report highlights the overall regressive nature of Alabama’s property tax regime.

PARCA Executive Director Jim Williams points out that Alabama’s income tax is essentially a flat tax and starts at one of the lowest income levels of any state in the country. That means low-income individuals and families start paying income taxes sooner than their counterparts in most other states. Additionally, Alabama is one of only three states that allow individuals to deduct on their state income tax return the full amount of federal income tax they paid during the year. Because the federal income tax tends to be more progressive than Alabama’s income tax, the benefit of the deduction is, by its nature, weighted toward upper-income individuals in the state. Thus, Alabama’s income tax, like its property tax, tends to be regressive.

Alabama’s sales tax collections rank 25th nationally, with rates that are among the highest in the nation. Despite that fact, the report finds that Alabama taxes a relatively narrow base, meaning that it excludes many services that are taxed by most states. Readers may recall the failed effort in 2003 to enact by referendum a package of tax reform bills — often referred to as “Amendment One” — that would have added a relatively narrow list of services to the sales tax.

Spencer sums it up, concluding that “high-income earners also benefit from features of the state income tax system like the full deductibility of federal income taxes. Meanwhile, poor households start paying income taxes at a lower threshold than anywhere else in the country. Those households also tend to feel the full brunt of high sales tax rates on the sale of goods, groceries and medication.”

Alabama’s Constitutionally Mandated Revenue Allocations Create Inefficiency

No other state constitutionally allocates, or “earmarks,” as much of its tax revenue as Alabama. The report finds that nearly 90% of state tax revenues are preassigned to a specific agency or to be spent on a particular program or purpose. In theory, that type of system should limit the discretion of legislators to send funds to pet projects or boondoggles. However, in practice, PARCA believes that it hampers government efficiency because state and local governments aren’t as free to spend the money in the areas in which it is most needed.

Low Revenues and Limited Flexibility are Tough on Good Government

Finally, the report highlights the impact that low tax revenues and strict allocation, which the report labels a “straitjacket,” have on good government and efficiency in Alabama. Specifically, it makes the case that state and local governments in Alabama don’t have sufficient resources. According to Spencer, the result is that “lawmakers don’t have a lot of flexibility with the resources they do have.”

Because of Alabama’s low tax revenue per capita, its state and local governments must be highly efficient and effective in order to maintain or exceed the level of government services that peer state and local governments deliver. Alabama often is faced with low revenue that is allocated away from its most pressing needs. Additionally, because the money comes in regardless of performance, Spencer notes that “agencies receiving earmarked funds don’t face much pressure to innovate. On the other hand, there isn’t extra money to reward good performance.”

To view a copy of the report, visit PARCA’s website at

ADOR Rolls Out Landmark ONE SPOT E-Filing System


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

Written by:

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.