Alabama

Per capita tax revenues of all state and local governments ($2,234) were less than those of every other state except New Hampshire and Tennessee, and per capita state receipts from property taxes ($43.49) were the lowest in the country.

As of 2002, the personal income tax ranged from 2% to 5%, with $2000 basic individual deductible and $300 for each child. A family of four becomes liable for income tax at $4,600 annual income, the lowest in the country. A reduction in the personal deduction from $2,000 to $1,500 for 2003 lowers the threshold further to $3,600. The tax on corporate net income was 5% for most enterprises, and 6.5% for financial institutions. The state also imposes a sales tax of 4%; localities may charge up to an additional 3%. Prescription drugs are tax-exempt, but food and non-prescription drugs are taxable. The General Fund draws on 36 tax sources, the leading ones in 2002 being the insurance company premium tax, interest on state deposits, interest earnings, corporate taxes, oil and gas production taxes, the cigarette tax, the ad valorum (property) tax, and profits from the alcohol control board. The Educational Trust Fund draws on 12 tax sources, the most important being the personal income tax, sales taxes, utility taxes, and use taxes.

Alabama's tax rates are according to those set in its 1901 Constitution, and in 2002, analysts estimated than sizeable portions of Alabama's potential tax base remained untaxed including half of sales revenues (most services being untaxed), 52% of personal income, and 88% of property value. Taxes are complex, with sales taxes imposed according to four schedules, one for general merchandise, and three separate ones for manufactures, cars, and vending machine products. State collections in 2002 were approximately $6.88 billion ($1,533 per capita), including $3.38 billion from general and selective sales taxes, $2.9 billion from individual income tax, $322,636 from corporate taxes, and $195,132 from property taxes. Revenue shortfalls obliged the Alabama legislature to make cuts of $19.9 million in the enacted 2001/02 budget, and of a reported $14.8 million in the enacted budget of 2002/03. In both years, Alabama was one of a record 37 states making such downward adjustments. Alabama exempted only debt service, federal court-ordered payments, and its Youth Services Operations from budget cuts.

The following table from the US Census Bureau provides a summary of taxes collected by the state in 2002.