Why Alabamas Taxes Are Unfair
From PARCA data. Per Capita State and Local Property Tax Collections, 2017. Source: U.S. Census Bureau, PARCACalculations.
This is an opinion column.
Theres a line, in a December report by the Public Affairs Research Council of Alabama at Samford University, that I just cant shake:
If Alabama collected taxes at Mississippis rate, the state would have an additional $1.5 billion to fund education, health care, highways, public safety, and the wide spectrum of state and local services provided.
Thats $1.5 billion, with a B. For prisons or prevention or investment or security. Thats $1.5 billion, to move us down a highway or better prepare our kids for a changing world. All if we simply collected taxes at rates comparable to Mississippi, which is not, if you thought otherwise, a bastion of liberal tax policy.
Its remarkable. As the reports author, senior research associate Tom Spencer wrote, Alabama which ranks 50th in the U.S. in per capita state and local property tax collections would raise an extra $2 billion a year if its per capita tax collections matched other Southeastern states.
Imagine. If we raised the income a state needs to survive, we might just be able to pay for the things we need to become a competitor in the fields of commerce, education, quality of life and common decency.
It ought to be Alabamas motto: Why pay taxes when you can pass them along to somebody less fortunate?
Here is why Alabamas taxes are unfair.
How To Register For A Sales Tax License In Alabama
Most businesses starting in Alabama will need to register for a sales tax license.; This is commonly referred to as a sellers permit, resellers license, sales tax number, or sales tax registration.;;; A business selling a product or offering certain services in Alabama will need to register.
Check out the rest of this guide to find out who needs a sales tax license, what products and services are taxable, how to register for a license, and reporting requirements.
Alabama Median Household Income
If your filing status is single, married filing separately or head of household, you will get taxed 2% on your first $500 of taxable income, 4% on earnings up to $3,000 and 5% on income over that amount. If youre married and filing jointly, that 2% of taxable income goes up to the first $1,000, 4% on up to $6,000 and 5% over that.
Alabamians working in some cities and counties have to pay local income taxes, called occupational taxes, of between 0.5% and 2%. These local taxes apply whether or not youre a resident in those areas.
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Tax Sales Of Real Property In Alabama
A property owner holds the title to a parcel of real property . Every year ad valorem taxes are due to the state, county, and city based on the value of the Property. If the Owner fails to pay those taxes, then the Property could be sold to a potential purchaser . What happens then? When can the Owner âredeemâ his Property from the Tax Purchaser? The answers can be confusing.
However, in 2016, Judge Sawyer of the United States Bankruptcy Court for the Middle District of Alabama undertook a detailed examination of the tax sale procedure and redemption rights. See In re Washington, 551 B.R. 644 . Judge Sawyerâs excellent description is summarized a bit further here to give you a better idea of what rights the Owner and Tax Purchaser may have and when they can exercise those rights. Any citations to authority supporting the statements may be found by reviewing In re Washington.
File Your Sales Tax Return
Now that youve registered for your Alabama seller’s permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
Recommended: Hiring a business accountant can help your business file tax returns as well as issue payroll and manage bookkeeping. Schedule a consultation with a business accountant today to save thousands of dollars on your taxes.
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Alabama State Unemployment Insurance
Alabama doesnt have state disability insurance, but it does have unemployment insurance, which covers those unemployed through no fault of their own. The wage base is $8,000 for 2021, and rates range from 0.65% to 6.8%.
If youre a new employer, youll pay a flat rate of 2.7%.
Remember, paying your SUI in full and on time qualifies you to get a huge FUTA tax credit, so make sure you pay attention to the due dates.
How Is Sales Tax Collected
When a business makes a sale of a taxable product or service, the business charges the appropriate sales tax rate to the customer.; This tax is collected by the business.;
What gets a little confusing is that in addition to the state sales tax, the State of Alabama also administers over 200 different city and county sales taxes, however the state does not collect sales taxes for all of the cities and counties. ;This means a business must contact all counties and municipality taxing agencies to determine whether they should register with them.;
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Which City Has The Highest Tax Which City Has The Lowest Tax
There is no easy method for quickly comparing the auto tax rates of every city in Alabama. For example, Flomaton has a very high city sales tax rate of 11%. However, they only charge 1% for the local auto tax, meaning youd pay a total of 3% auto tax there.
The best way to see the auto tax rate for any given city in Alabama is to use the Department of Revenues search calculator function. Enter the city name you are looking for, and you can view the auto tax rate for that city.
Alabama Sales Tax Calculator
You can use our Alabama Sales Tax Calculator to look up sales tax rates in Alabama by address / zip code. The calculator will show you the total sales tax amount, as well as the county, city, and special district tax rates in the selected location.
Alabama has a 4% statewide sales tax rate,but also has 287 local tax jurisdictions that collect an average local sales tax of 3.981% on top of the state tax. This means that, depending on your location within Alabama, the total tax you pay can be significantly higher than the 4% state sales tax.
For example, here is how much you would pay inclusive of sales tax on a $200.00 purchase in the cities with the highest and lowest sales taxes in Alabama:
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How Much Are Transfer Taxes In Alabama
In Alabama, the real estate transfer tax rate is $0.50 per $500 of the purchase price, or 0.1% and officially records the transfer of the deed. The exact amount owed for your transaction will depend on how much your home sells for.
For example, the median home sale price in Alabama is $144,000, which means the real estate transfer tax amount would equal $144.00.
If you’re an Alabama buyer taking out a mortgage to finance your home purchase, you’ll also have an additional mortgage recording fee of $0.15 per $100. In this case, expect to pay a total of 0.25% per $100 in taxes and recording fees.
Occupancy Tax Collection And Remittance By Airbnb In Alabama
State of Alabama
Guests who book Airbnb listings that are located in the State of Alabama will pay the following taxes as part of their reservation:
- Alabama State Lodging Tax: 4-5% of the listing price including any cleaning fee for reservations 179 nights and shorter.For detailed information, please visit Sales and Use Tax at the Alabama Department of Revenue website.
- County Lodging and Rental Tax collected by the State: 1-6% of the listing price including any cleaning fee for reservations 179 nights and shorter. For detailed information, please visit Local Sales, Use, Lodgings Rental Tax Rates at the Alabama Department of Revenue website.
- Municipality Local Lodging Tax collected by the State: 2-12% of the listing price including any cleaning fee for reservations 179 nights and shorter. For detailed information, please visit Local Sales, Use, Lodgings Rental Tax Rates at the Alabama Department of Revenue website.
Guests who book Airbnb listings that are located in Lee County, AL will pay the following tax as part of their reservation:
- Lodging Tax: 2% of the listing price including any cleaning fees, for reservations 179 nights and shorter. For detailed information, please visit theLee County Revenue Commissioner website.
Guests who book Airbnb listings that are located in the City of Auburn, AL will pay the following tax as part of their reservation:
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When Sales Tax Is Exempt In Alabama
Certain charitable and nonprofit organizations can obtain a certificate of exemption from the Department of Revenue to purchase vehicles tax-free.
Gifted vehicles are also exempt from car sales tax.
Furthermore, any vehicles sold and paid for by the Poarch Band of Creek Indians are exempt from sales tax when they are delivered to reservation land.
How Much Is The Car Sales Tax In Alabama
According to the Alabama Department of Revenue, Alabama charges 2% for auto sales tax. The actual sales tax may vary depending on the location, as some counties/cities charge additional local taxes. In some parts of Alabama, you may pay up to 4% in car sales tax with local taxes. 2% is the statewide sales tax.
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Alabama Ev Rebates & Incentives
Compared to other states, Alabama offers minimal rebates and incentives. For consumers, they do not have any state EV incentives regarding vehicle tax. However, there are utility incentives. For example, Alabama residents who own or lease a plug-in electric vehicle can enjoy a discounted TOU rate for energy consumed.
Tax information and rates are subject to change, please be sure to verify with your local DMV.;
Certificate Of Purchase And Right To Possession
If the Owner fails to pay the Taxes, the probate court of the county in which the Property is located may order the sale of the Property. The probate court must sell the property at the tax sale for at least the amount of the tax lien . If there is no bidder, the State of Alabama buys the land at the amount of the tax lien.
If a private party purchases the property at the tax sale , the Tax Purchaser is entitled to a certificate of purchase containing a description of the Property and the Taxes owed. The Tax Purchaser is immediately entitled to possession of the Property and may demand possession from the Owner. If the Owner has not surrendered possession of the Property to the Tax Purchaser within six months after the Tax Purchaser demands possession, the Tax Purchaser may sue the Owner for âejectment.â An âejectmentâ action is a lawsuit brought by one party to remove another from the property.
An ejectment action normally requires a showing by the plaintiff that he has either legal title to, or possession of, the property, and that the defendant has either unlawfully entered upon or detained the property. The Alabama Code regarding tax sales provides the Tax Purchaser a statutory exception to the requirement of the legal title when pursuing an ejectment action against the Owner.
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More Help With Taxes In Alabama
Understanding tax rates in Alabama can be tricky. Luckily, were here to save the day with H&R Block Virtual! With this service, well match you with a tax pro with Alabama tax expertise. Then, you will upload your tax documents, and our tax pros will do the rest! We can help with your AL taxes, including federal deductions for paying state taxes.
Prefer a different way to file? No problem you can find Alabama state tax expertise with all of our ways to file taxes.
Are you wondering Why do I owe taxes this year? and are stumped for the answer? Let H&R Block tax pros explain why you may owe and what you can do about it.
Tax Breaks And Credits For Buyers
When purchasing a home in Alabama, these tax deductions and credits can help you save money along the way.
Mortgage Credit Certificates
Mortgage credit certificates or MCCs allow buyers and homeowners to save more come tax season. While MCCs are most often granted to first-time home buyers, in Alabama they are available to any buyer with a fixed-rate FHA, VA, Rural Development, or private loan.
Mortgage credit rates in Alabama are as follows:
- 20% MCC for $150,001 loan or greater
- 30% MCC for $100,001 – $150,000 loan
- 50% MCC for $100,000 loan or less
Mortgage Interest Deductions
When buying a new home in Alabama, buyers should take advantage of mortgage interest deductions. To qualify in full and deduct the total amount of mortgage interest paid withina year, you must owe less than $750,000 on your loan.
Buyers who claim mortgage interest deductions will need to itemize their taxes and can only claim this deduction on their primary home and one other residential home each year.
Private Mortgage Insurance Deductions
If you paid less than 20% on your down payment, chances are you have to pay for monthly private mortgage insurance or PMI. The upside to paying PMI is that youâre able to deduct the full amount of interest you paid each year from your taxes.
To learn more, reach out to your accountant or real estate agent.
Property Tax Deductions
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Who Pays Transfer Taxes In Alabama: The Buyer Or The Seller
The real estate transfer tax is paid to a local or state agency to transfer real property from one owner to another. The buyer cannot take ownership of the property until the transfer tax has been paid.
In Alabama, the transfer tax is usually paid by the buyer. However, the buyer can negotiate with the seller to shift responsibility for this fee as part of the sales agreement.
In slow markets or in situations when a seller wants to sell their home quickly, they may agree to pay the transfer tax to secure a buyer.
How Often Should You File
How often you need to file depends upon the total amount of sales tax your business collects.
- Annual filing:;If your business collects $120 or less during the previous calendar year, your business should elect to file returns on an annual basis.
- Quarterly filing:;If your business collects below $2400 during the previous calendar year, your business should elect to file returns on a calendar quarterly basis.
- Monthly filing:;If your business does not vote or does not qualify for either of the latter options, your business will, by default, file returns on a monthly basis.
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Alabama Property Taxes By County
You can choose any county from our list of Alabama counties for detailed information on that county’s property tax, and the contact information for the county tax assessor’s office. Alternatively, you can find your county on the Alabama property tax map found at the top of this page. Hint: Press Ctrl+F to search for your county’s name
Median Property Taxes In Alabama By County
How To File Taxes In Alabama
When tax time rolls around in Alabama, whether itâs monthly or annually, you must do three things:
Alabama requires that any seller with a sales tax permit file a sales tax return on your due date, even if you donât have any sales tax to report or pay. Even if you didnât make a single sale in Alabama during the reporting period, you should must do a âzero tax filing.â
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Example Of Alabama Sales Tax In Gadsden
To get a basic understanding of how Alabama imposes a state and county sales and use tax on most products and some services purchased in the state you can make a quick calculation of the amount of Alabama sales tax you will pay based on the product price and sales tax rate charged within the county you are purchasing from.
So, if you are going out for a meal in Etowah County, the sales tax rate is 1%. Usually, you would add this to Alabamas base sales tax rate of 4%, meaning you would be paying a total of 5%. Since you are also in Gadsden, there is an additional sales tax rate of 5% for the city of Gadsden. So you pay 4% + 1% +5% = 10%. So, when you spend $200 in a Gadsden, AL restaurant, and ask for the check , expect to see an additional 10% added, making your total bill $220 . Also, bear in mind that if the service is good you should tip your server on top of this!
If you are curious about what the minimum wage is in Alabama and what the minimum wage is for tipped employees, you can head over to our page that has specific details on this.
State of Alabama Sales Tax for Businesses
Any of the following criteria may be considered by the state of Alabama as qualifying a seller/business to have sales tax nexus:
- An office or place of business such as a retail store
- A warehouse or inventory stored in the state
- The regular presence of traveling salespeople or other agents
- Remote entity nexus
- Economic nexus
Alabama Sales Tax by County