Analysis: Alabama’s corporate tax rates are higher than most of its neighbors

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Downtown skyline of Mobile, Ala. Facebook / City of Mobile - Government

An analysis by the nonpartisan Tax Foundation says Alabama’s corporate tax rate is as high or higher than all of its neighboring states.

In the ranking by highest rates, Alabama and Tennessee each have a rate of 6.5% and tied for 23rd. Behind them were Georgia (5.75%, 31st), Florida (5.5%, 32nd), and Mississippi (5%, 34th).

The highest corporate tax rates are New Jersey at 11.5%, followed by Minnesota (9.8%) and Illinois (9.50%).

North Carolina had the lowest corporate tax rate at 2.5%, followed by Missouri and Oklahoma (both at 4%) and North Dakota (4.31%). 

The Alabama Policy Institute, in its Conservative Platform for Alabama, recommends that lawmakers lower the rate to 4.75% and end the ability of corporations to deduct federal corporate tax paid.

According to the platform, this ability to deduct federal tax made the state tax dependent on the federal rate.

When the Tax Cuts and Jobs Act of 2017 was signed into law by then-President Donald Trump, corporate taxes were reduced, and this resulted in Alabama companies paying an effective rate of 5.2% since they didn’t have as much federal tax to deduct. 

Alabama’s corporate tax collections are only a small part of the state’s revenues. In fiscal 2020, the state collected $12.2 billion in revenue, with corporate income tax representing only 4.9% of that figure ($604 million). In fiscal 2021, the state collected $13.9 billion, with the state’s corporate income tax accounting for 6.97% of that figure ($973 million). 

The Yellowhammer State also didn’t fare well in the Tax Foundation’s analysis of the business tax climates of the states, ranking 41st. Florida ranked fourth, followed by Tennessee (14th), Mississippi (30th), and Georgia (32nd).

Alabama’s corporate tax rate, along with its individual income tax (30th) and sales tax rate (50th), hurt its ranking among neighboring states. Tennessee and Florida don’t levy state income taxes. 

Republished with the permission of The Center Square.