Corporate Income Tax

Alabama’s current 6.5% corporate income tax rate is amongst the highest in the Southeast. Because of Alabama company’s ability to deduct federal income taxes paid from state returns, the effective tax rate ends up being more competitive. However, having a high statutory tax rate puts Alabama at a disadvantage in attracting new business to the state.

According to a 2020 report from the Joint Legislative Task Force on the Tax Cuts and Jobs Act, “Alabama gets little to no credit for its lower effective tax rates resulting from the FIT deduction. We are advised that it is a meaningful competitive disadvantage in state comparisons by economic developers and companies looking to locate in the Southeast. Alabama will never know how often it has been “deselected” in a business location decision because it is perceived to have one of the highest corporate income tax rates in the Southeast.”

Lowering the statutory corporate income tax rate would make Alabama more competitive with our neighbors and provide more stability to tax collections and rates moving forward.

Individual Income Tax

Alabama utilizes a graduated individual income tax structure with rates ranging from 2.0% to 5.0% The state begins collecting taxes on the first dollar of income that citizens make. All single filers making above $3,000, and married filers making about $6,000 pay the top rate of 5%.

Six Southeastern states currently have lower top income tax rates than Alabama. In addition to those states, the Georgia General Assembly already enacted laws that will reduce the state’s top individual tax rates to lower than Alabama’s over the next few years. Tennessee and Florida do not collect any state individual income taxes.

Over the course of 2021 and 2022, 21 states cut income tax rates. In 2023 another 9 states enacted income tax cuts, with some of those states doing so for the second time in three years. That includes Mississippi, who passed the largest income tax cut in state history 2022 and has continued to consider further tax cuts over the past two legislative sessions.

Without enacting statutory rate changes, Alabama will have one of the highest income tax rates in the Southeast by the end of this decade.