Analysis shows that Alabama sales tax rates are fourth highest nationally
(The Center Square) — Alabama’s combined sales tax rate of 9.25% is fourth highest nationally, according to a report by the nonpartisan Tax Foundation.
Alabama’s sales tax rate trails only Louisiana (9.55% combined with a maximum local rate of 7%), Tennessee (9.55% combined with a maximum local rate of 2.75%) and Arkansas (9.46% combined rate with 6.125% as the maximum local rate).
Three of the state’s five largest cities by population – Birmingham, Mobile and Montgomery – have sales tax rates of 10%. In Mobile, for example, the county receives 1% and the city levies a rate of 5% in addition to the statewide rate of 4%.
Huntsville has a 9% sales tax rate, the lowest of the state’s major cities, a rate it shares with Tuscaloosa, Muscle Shoals and Dothan.
Of Alabama’s neighbors, all but Tennessee have lower combined sales tax rates, including Florida (7.02%), Mississippi (7.07%) and Georgia (7.4%).
According to the report, California has the highest statewide rate at 7.25%, followed by Indiana, Mississippi, Rhode Island and Tennessee at 7%.
The Tax Foundation says 45 states levy a sales tax, while 38 allow local governments to levy one as well.
Five states – Alaska, Delaware, Montana, New Hampshire and Oregon – do not levy state sales taxes, but Alaska allows local governments to institute them.
One issue with sales taxes, according to the Tax Foundation, is competition between states and local governments. The group advises policymakers to be cautious about increasing rates much higher than neighboring states and communities because that can lead to tax revenues not meeting expectations or even a revenue loss.
For example, several suburban communities in Alabama have lower taxes than the major city. Both Prattville (Montgomery) and Daphne (Mobile) have combined tax rates of 9.5%, 0.5% lower than the major cities.
