About Alabama — Alabama’s Sales Taxes

In broad terms, governments levy three types of taxes to raise revenue. They tax

• what we own (property taxes),
• what we earn (income taxes) and
• what we spend (sales taxes).

Property taxes are the oldest of the three types. Increasingly unpopular, they remain a mainstay of public finances in many states.

According to the Census Bureau, property taxes still account for 30 percent of state and local tax revenue in the United States.

However, in Alabama, where the property tax is disliked more than in any other state, it represents only 16 percent of state and local tax revenue — about half the national average. The gap has been filled with sales taxes of various types, which account for almost half of all state and local tax revenue (compared to one-third nationally).

Mississippi was the first state to enact a “general” sales tax that applied to purchases of most commodities and some services. This occurred during the Depression, and in the years that followed, most other states also turned to this revenue source. Today general sales taxes are present in 46 of the 50 states. Only Delaware, Montana, New Hampshire and Oregon have no state or local sales taxes at all.

The Tax Foundation, a national research organization, recently compiled figures on sales tax rates in each state. Its report gives us the ability to see how Alabama’s sales taxes compare to those of our neighboring states and the rest of the country.

Alabama’s sales tax rate for the state government is 4 percent. Only Colorado has a lower statewide rate (2.9 percent). However, the average sales tax rate for local governments in Alabama is 4.64 percent, which ranks second highest among all states; Louisiana is first at 4.84 percent.

Adding the state and local sales tax rates together, we find that Alabama’s combined sales tax rate of 8.64 percent is the sixth highest in the nation. Tennessee ranks first with a very high combined sales tax rate of 9.43 percent.

Our other neighbors are all substantially lower: Mississippi at 7 percent, Georgia at 6.87 percent and Florida at 6.65 percent.

EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama. Jim may be contacted at jwwillia@samford.edu.