Why Alabama Residents Are Paying More Income and Sales Tax This Year

Magnifying Glass and TaxThroughout the first three quarters of the current fiscal year, Alabama residents have already paid more in state income tax and sales tax than they did last year — and, despite how it may sound, this is actually good news.

According to AL.com, the fact that residents have paid more state taxes since the fiscal year began in October is an indicator of economic growth.

Through June, Alabamians have paid $3.05 billion in income taxes, a 5% increase over the previous fiscal year, before refunds and other adjustments. For Alabama residents, the maximum marginal income tax is currently 5%; nationally, the maximum income tax rate is set at 35%.

Gross corporate income tax collections in Alabama are up 21%, at $426 million. Meanwhile, gross sales tax collections reached $1.6 billion, a 3.4% growth. The current sales tax rate in Alabama is 4%. People living in Birmingham, Montgomery and Mobile pay the highest sales tax in the state, the Chicago Tribune reported. Compared to residents of Chicago, who pay the nation’s highest sales tax rate of a stunning 10.25%, Alabamians have it easy.

Acting State Finance Director Bill Newton said these increases are healthy, and are in line with revenue projections the state legislature made when it passed its budgets last year.

“Three to 5% is solid growth for our tax receipts,” Newton said.

However, economist Keivan Deravi, dean of the College of Public Policy and Justice at Auburn University at Montgomery, said this growth is another sign of the slow-moving recovery that Alabama has had since the end of the recession.

“A 3% increase in sales tax is very, very average,” Deravi said. “You have an inflation rate of about 2%, so in actuality it’s really a 1% increase.”

Still, Alabama residents can be optimistic, considering the positive job growth the state is currently enjoying.

“So things are beginning to step up, but this has been a very slow, very long, very painful recovery,” Deravi said.

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