By: SPEAKIN’ OUT NEWS
MONTGOMERY, Ala. — Alabama continues to collect significantly less in taxes per resident than most of the nation while relying more heavily on regressive forms of taxation, according to the 2025 edition of “How Alabama Taxes Compare,” released by the Public Affairs Research Council of Alabama (PARCA).
Using fiscal year 2023 data, the report finds that Alabama’s combined state and local tax collections totaled $4,930 per resident, an increase of about 3.8 percent from the previous reporting period. Even with that growth, Alabama ranked near the bottom nationally—only two states collected less per capita—and well below the national median of $6,524.
PARCA attributes Alabama’s low tax collections to both lower tax rates and a smaller economic base. Income levels and overall economic output in the state remain below national averages, limiting revenue potential.
When measured as a share of personal income, Alabama ranks 38th, with state and local taxes accounting for about 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,” the report states. “They can produce higher tax revenues with less tax effort.”
Heavy reliance on sales taxes
A key finding of the report is Alabama’s imbalanced tax structure. The state has the lowest property taxes in the nation, largely due to constitutional limits and broad exemptions. While this keeps property taxes low, it restricts funding for schools, infrastructure, and local services.
Nationally, property taxes make up about 29 percent of state and local revenue. In Alabama, they account for just 16 percent, forcing greater reliance on sales taxes.
When state and local sales taxes are combined, Alabama’s rates rank among the highest in the country. Local governments nationwide receive about 19 percent of revenue from sales taxes; in Alabama, that figure is about 50 percent—making the system more regressive and harder on lower-income households.
Long-term implications
PARCA concludes that while Alabama’s low-tax environment may attract businesses and residents, it also limits investment in education, healthcare, infrastructure, and workforce development, leaving the state more vulnerable during economic downturns.