Alabama climbs list of most tax-friendly states in the U.S.

According to an analysis of state tax rules by Kiplinger, a Washington, D.C.-based business forecasting and personal finance publisher, Alabama is among the most tax-friendly states in the country.

“State taxes and the ways they are collected vary significantly across the country,” Kiplinger explained. “For example, some states with low income taxes impose above-average sales or property taxes — a big consideration if you intend to own your house. Most states allow cities and counties to add their own sales taxes, which can boost combined sales taxes in some cities to 10% or more.

“It’s also important to consider the potential trade-offs. Low tax revenues may give a state less money to spend on education, transportation, public safety and other quality-of-life services important to you and your family.”

Keeping all of that in mind, Alabama climbed one spot on Kiplinger’s 2014 list, up to number 5 overall.

Here’s why:

State income tax: 2%-5%

State sales tax: 4%

Gas taxes and fees: $0.21 per gallon

The Yellowhammer State moves up from 6th to 5th on our annual rankings because its state and local property tax collections, per capita, have dropped to the lowest in the U.S., according to the Tax Foundation. Income tax rates top out at a maximum rate of 5% on taxable income of more than $3,000 for single filers and $6,000 for married couples. Alabama also allows residents to deduct all of their federal income tax from state taxable income.

While the state’s sales tax is 4%, additional levies from cities and counties boost the state average to 8.5%. And Alabama is one of a minority of states that doesn’t exempt food from sales taxes. Prescription drugs and insulin-related items are exempt, however.

The median property tax on the state’s median home value of $119,600 is a low $398, according to the Tax Foundation.

Alabama also has one of the lowest cigarette tax rates in the U.S., at just 43 cents per pack.

That last little nugget about cigarette taxes is particularly notable considering the disastrous state of Alabama’s General Fund Budget, which is likely to renew calls for sin tax hikes.

On another note, the low tax, low regulation economic climate the state has created undoubtedly played a role in it recently being named one of America’s top states for doing business.

Here’s Kiplinger’s full top 10 list of the most tax-friendly states in the U.S.:

1. Delaware
2. Wyoming
3. Louisiana
4. Mississippi
5. Alabama
6. Arizona
7. Nevada
8. New Mexico
9. South Carolina
10. West Virginia

For all the details, check out the full article on Kiplinger.com.

(h/t BBJ)

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