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State Taxes and Other Major Sources of Revenues and Income


Like all other governmental agencies, the State of Alabama depends on taxes, fees, and other levies and payments in order to conduct the business of state government and to provide services to its citizens. Since the majority of these services are funded through the State General Fund and/or the Education Trust Fund, references to these two funds have been emphasized in the following descriptions.

As the title of this section implies, these are the "major" sources of revenue for the State of Alabama. No attempt has been made to list the myriad of professional and occupational licensing fees that are collected by the various regulatory boards or other departmental receipts.





A-C I-M
 Ad Valorem Taxes
 Alabama Heritage Trust Fund
 Alabama Trust Fund
 ABC Board Revenue
 Beer Tax and County Licenses
 Business Privilege Tax
 Cigarette and Tobacco Tax
 Contractor's Gross Receipts Tax
 Corporate Share Tax
 Corporation Fees
 
 Income Tax
 Inheritance and Estate Tax
 Insurance Company Licenses Tax
 Interest on State Deposits
 Leasing/Renting Persnal Property
 Lodgings Tax
 Mortgage Record Tax
 Motor Fuels Tax
 Motor Vehicle Registrations
D-H O-U
 Driver's License Fees
 Federal Funds
 Financial Institutions Excise
 Franchise Tax
 Gasoline Tax
 Hazardous Waste Fees
 Hydroelectric Companies Tax
 Oil and Gas Privilege Tax
 Oil and Gas Production Tax
 Pari-Mutuel Tax
 Privilege License Tax
 Public Utilities Tax
 Sales Tax
 TVA Payments
 Use Tax
 Utility Taxes
 


Ad valorem Taxes--A general property tax is levied on real and personal property within the State. For the purpose of assessment, four separate classes of property have been established and a separate assessment ratio has been assigned to each such class. The amount of ad valorem tax payable is determined by applying the applicable tax rate to the assessed value of the property in question. Ad valorem taxes are collected by the tax collectors in the various counties of the State, remitted to the State Treasury, and distributed to the Public School Fund, the Public Welfare Trust Fund, Alabama Veterans' Assistance Fund and the State General Fund.

Alabama Heritage Trust Fund--A perpetual trust established in 1982 by Constitutional Amendment No. 394. The Alabama Heritage Trust Fund was created from proceeds of all sales or lease payments received by the State of Alabama from January 1, 1981 through October 31, 1981, for the rights to explore and drill for oil and gas in any offshore area. Earned net income of the Alabama Heritage Trust Fund is deposited into the State General Fund. Within 90 days after September 1, 2001, the trust capital of the Alabama Heritage Trust Fund was transferred to the Alabama Trust Fund and the trust income was transferred to the State General Fund. Amendment No. 450 states the Alabama heritage trust fund, the board of trustees of the Alabama heritage trust fund, and all other aspects of the Alabama heritage trust fund shall terminate and dissolve 90 days after September 1, 2001.

Alabama Trust Fund--Amendment No. 450 to the Alabama Constitution, ratified by the Alabama voters on June 4, 1985, established an irrevocable, permanent trust fund. "The Alabama Trust Fund" is comprised of all payments (including any royalty payments) received after August 1, 1984, from the sale or lease of the rights to explore and drill for oil and gas in offshore areas of the coast of Alabama. This amendment also states the Alabama heritage trust fund, the board of trustees of the Alabama heritage trust fund, and all other aspects of the Alabama heritage trust fund shall terminate and dissolve 90 days after September 1, 2001. Constitutional Amendment No. 666 ratified by Alabama voters on December 13, 2000, provided for the income of the trust. Beginning October 1, 2001, the Fund receives 65% of the oil and gas lease payments received by the State. The remaining 35% is transferred to (1) the County and Municipal Government Improvement Fund (7%); and (2) Alabama Capital Improvement Fund (28%). Constitutional Amendment No. 488, ratified by Alabama voters on November 8, 1988, modified the investment parameters so as to allow capital gains to become part of the trust capital. On November 3, 1992, the Forever Wild Constitutional Amendment was ratified by the Alabama voters, whereas the Forever Wild Trust Fund will receive 10% of the interest income until FY 2012, provided that the trust income paid cannot exceed $15 million in any one fiscal year. Within 90 days after September 1, 2001, the trust capital of the Alabama Heritage Trust Fund was transferred to the Alabama Trust Fund and the trust income of the Alabama Heritage Trust Fund was transferred to the State General Fund. Earned income is transferred to the Treasurer as it is received by the Alabama Trust Fund Board. Constitutional Amendment No. 666, ratified by Alabama voters on December 13, 2000, provided for the distribution of trust income whereas beginning October 1, 2001, in any year in which the trust income exceeds $60 million, the excess will be distributed 10% to County Government Capital Improvement Fund; 10% to Municipal Government Capital Improvement Fund; 10% (up to a maximum of $15 million) to the Forever Wild Land Trust Fund. In the fiscal year following the first fiscal year Forever Wild receives $15 million, 25% ( and increasing by .25% per year thereafter to a maximum of $5 million) will be distributed to the Senior Services Trust Fund. The remainder of all excess will go to the State General Fund. Within the 30 days following the end of any fiscal year, the Board of Trustees may transfer up to 75% of realized or unrealized capital gains for the just completed fiscal year to be distributed the same as trust income.

Alcoholic Beverage Control Board Revenue--Licenses and associated filing fees are required of distillers, manufacturers, importers, wholesalers and retailers for the privilege of alcoholic beverage distribution within the state. Licenses, fees, liquor, and wine taxes are collected by the Alabama Alcoholic Beverage Control Board. These collections, as well as the profits of the Alabama Alcoholic Beverage Control Board, are distributed to the State General Fund, the Public Welfare Trust Fund, the Special Mental Health Trust Fund, ABC Board Fund, municipalities, and specific appropriations. The last increase of 8% in the markup price passed in 1988 as Act No. 88-869, pledged and appropriated 61.5% of the increase thereof to pay principal, premium and interest on all bonds issued by the Alabama Mental Health Finance Authority only if cigarette tax is not sufficient to pay for bonds and appropriated the remaining 38.5% to the State General Fund. Act 2001-891 changed the distribution of the ABC store profits and prohibited transfers to the State General Fund or state agencies in the annual General Fund budget act.

Beer Tax and County Licenses--Excise taxes are levied on the sale, storage, or receipt of malt or brewed beverages for the purpose of distribution. The taxes are collected by the Alabama Alcoholic Beverage Control Board for distribution to the State General Fund, the Public Welfare Trust Fund, the Education Trust Fund, and counties in which the sale of alcoholic beverages is permitted by law.

Business Privilege Tax--Act 99-665 repealed the Franchise Tax and established the Business Privilege Tax on every corporation, limited liability entity and disregarded entity doing business in Alabama or registered under the laws of Alabama. The tax, collected by the Department of Revenue, is based on the taxpayer's net worth in Alabama. After deduction of the collection costs, the balance of the tax is distributed to each county and local ad valorem tax receipt agency in the amount equal to that received for the franchise tax collections and the domestic corporation assessment of shares tax during the fiscal year ending September 30, 1999 (to increase by .75% each year beginning in fiscal year ending September 30, 2000). All remaining revenue is distributed to the State General Fund

Cigarette and Tobacco Tax--A privilege and use tax on tobacco is levied on the sale, storage or distribution of cigarettes by wholesalers and retailers and use by consumers. A majority of the proceeds is distributed to the State General Fund, with the remainder going to the State Public Welfare Trust Fund, the Special Mental Health Trust Fund, the State Parks Development Authority, the State Parks Fund, the State Industrial Development Authority, and for the purpose of acquiring and constructing mental health facilities in the State. Effective May 2004 the cigarette tax was increased from $.165 per pack of 20 cigarettes to $.425 per pack of 20 cigarettes with the increase going to the State General Fund for Medicaid Services.

Contractors' Gross Receipts Tax--A privilege tax on any person or corporation contracting to construct, reconstruct or build any public highway, road, bridge or street. After the cost of administration and collection is deducted by the State Department of Revenue, the proceeds are distributed 15% into the Public Welfare Trust Fund and 85% into the Alabama Special Mental Health Fund.

Corporate Shares Tax--(Repealed by Act 99-665 for taxable years beginning on or after January 1, 2002) Corporations pay an amount based on the taxpayer's adjusted net worth in Alabama. This tax is collected by the State Department of Revenue and distributed to the State General Fund.

Corporation Fees--Fees are charged by the Secretary of State and probate judges for filing documents, issuing certificates, etc. Funds collected by the Secretary of State are divided 30% to the Corporations Fund and 70% to the State General Fund. Collections by the counties are deposited into the county treasuries.

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Driver's License Fees--County probate judges or license commissioners collect fees for four-year driver’s licenses and learner’s permits. License duplicate, reinstatement and examination fees are collected by the Department of Public Safety. Each county retains $1.50 per license issued. The balance is deposited into the State General Fund to be appropriated for public safety use except for $8.00 of the $23.50 license fee for a regular license, nondrivers identification card or learner's license which is deposited to the Highway Traffic Safety Fund for the Department of Public Safety and $.50 is allocated and appropriated to the Alabama Veterans Living Legacy Trust Fund. 

Federal Funds--The amount the State receives each year from various federal programs is over $5.6 billion. Federal dollars provide the citizens of the State with aid in the areas of health, welfare, education, highways, employment services, planning, and energy and help fund many routine government operations.

Financial Institutions Excise Tax--An excise tax is levied on the net income of any credit union, bank, banking association, trust company, loan company or association, or person or institution coming into competition with the business of national banks. Collections are made by the State Department of Revenue. After the cost of collection is deducted by the Department of Revenue, the amount of revenue generated by the additional 0.5% tax rate added by Act No. 99-664 is distributed to the State General Fund, and the remaining proceeds are distributed as follows: 25% to the State General Fund; 25% to the counties in which institutions are located; and 50% to the cities in which the institutions are located.

Franchise Tax and Permit Fee--(Repealed by Act 99-665 for tax years beginning after December 31, 1999) The assessments were based on the capital stock of a domestic corporation and on the actual amount of capital utilized in the State by a foreign corporation. The franchise tax was collected by the State Department of Revenue and was distributed to the State General Fund, Public Welfare Trust Fund, and counties in which the companies operate. All permit fees were deposited into the State General Fund.

Gasoline Tax--A total of $0.16 per gallon is charged on the sale, consumption, distribution, storage or withdrawal from storage of gasoline. Of the total $0.16, after costs of collection, the proceeds are distributed in three portions: $0.07, $0.04, and $0.05. A total of 1.23% of the $0.07 and $0.05 is distributed to the State Water Safety Fund, the Seafood Fund, and the Game and Fish Fund. The remaining proceeds from the $0.07 per gallon levy, the entire proceeds from the $0.04 levy, and 40% of the remaining proceeds from the $0.05 levy are distributed 45% to the Public Road and Bridge Fund and 55% to the counties. 60% of the net proceeds from the $0.05 levy are distributed to the Public Road and Bridge Fund, of which amount $500,000 each year is designated to be used for the construction, maintenance and repair of public roads in the State's Park System.

Hazardous Waste Fees--A fee levied on operators of commercial sites for the disposal of hazardous substances for each ton of hazardous waste or hazardous substance received for disposal and disposed of at such sites. These fees are collected by the Department of Revenue following the receipt of hazardous waste by commercial hazardous waste disposal facilities. Fees collected for county purposes are collected by the county. $500,000 of the revenues are deposited annually in the ALERT Trust Fund. Remaining fees are distributed to the State General Fund, which may be reduced by the amounts payable to counties that have commercial waste disposal facilities and up to $4.5 million annually pledged towards Alabama Public Health Finance Authority bonds and the cost of collection of the fees.

Hydroelectric Companies Tax--This tax is collected by the State Department of Revenue from the privilege tax on the manufacture and sale of hydroelectric power within the state and is allocated 42% to the Education Trust Fund and 58% to the Special Mental Health Trust Fund.

Income Tax (net personal and net corporate income)--Personal income is taxed at a maximum of 5% after specified exemptions and deductions (including federal income taxes paid). Corporate income remaining after the subtraction of statutory deductions (including federal income taxes paid) is taxed at the rate of 6.5%. After deducting costs of collection, refunds, allocations for the State General Fund, the Soldier's Relief Fund, and the Public School Fund, the net proceeds are deposited into the Education Trust Fund for payment of public school teachers' salaries.

Inheritance and Estate Tax--Levies from inheritance and estate taxes on all net estates passing by will, devise or under intestate laws of the State are collected by the State Department of Revenue and deposited into the State General Fund. The amount of the tax is equal to the tax credit allowable under the federal estate tax laws.

Insurance Company Licenses and Premium Tax--A varying license tax, depending on the type of insurance, is levied for the privilege of providing insurance within the State and a varying premium tax is imposed on the amount of premiums written by an insurer. Proceeds from the Insurance Premium Tax are distributed among the State General Fund, the Education Trust Fund, the Special Mental Health Trust Fund and the Insurance Department Fund. Proceeds from licenses and fees are distributed equally to the Insurance Department Fund and the State General Fund, except for application fees for agent licenses and appointments and fees for service representatives' licenses, which are deposited to the Insurance Department Fund.

Interest on State Deposits--Interest earned by the State Treasurer through the investment of State funds is credited to the State Treasury and, unless otherwise provided for by law, is credited to the State General Fund.

Leasing or Renting of Tangible Personal Property--A privilege tax is levied upon persons engaged in leasing or renting tangible personal property, including the renting or leasing of automotive vehicles, trucks, semi-trailers, or house trailers and the renting or leasing of linens and garments. The proceeds remaining after payment of administrative and enforcement expenses are deposited into the State General Fund.

Lodgings Tax--A privilege tax is levied upon every person or firm that rents or furnishes lodgings or accommodations to transients for a period less than 180 days for a fee. The statewide tax is distributed to the State General Fund and to the Department of Tourism and Travel in a 75%-to-25% ratio, respectively. An additional levy is made in a four-county region known as the Mountain Lakes area for the promotion of tourism and recreation. 20% of proceeds from the additional levy are distributed 50% to the Mountain Lakes Tourist Association and 50% to the four counties.

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Mortgage Record Tax--A license or privilege tax is collected by the probate judge of each county for filing a mortgage, deed of trust, contract of conditional sale, or similar instrument given to secure payment of any debt incurred in connection with the conveyance or transfer of any real or personal property in the State, or any security agreement or financing statement provided for by the Alabama Uniform Commercial Code. After deducting the cost of collection for the county probate judge, the net proceeds are deposited into the State General Fund (two-thirds) and into the county treasuries (one-third).

Motor Fuels Tax--An excise tax is levied on each distributor or supplier for use of motor fuel to include diesel oil, tractor fuel, gas oil, jet fuel and kerosene. An excise tax is also levied upon motor carriers who operate motor vehicles on State highways. The State Department of Revenue collects this tax and after the cost of collection is deducted, proceeds are credited to the Department of Transportation to be allocated for the repayment of Highway Authority Bonds and for the construction and maintenance of public roads and bridges.

Motor Vehicle Registrations--An annual license tax or registration fee is required on each motor vehicle operated on the public highways of Alabama. After the deduction of administrative cost and additional amounts collected on truck and truck tractors, 72% of the proceeds is deposited into the Public Road and Bridge Fund, 21% is distributed to the county or municipality in which the vehicle is located, and 7% is distributed by the State Treasurer to the 67 counties on the basis of vehicle registrations. Additional amounts collected on truck and truck tractors are distributed 64.75% to the Public Road and Bridge Fund and 35.25% by the State Treasurer to the 67 counties of the state. An additional fee of $10 is paid on private passenger automobiles and trucks with a gross weight of 8,000 pounds or less ($8 additional for motorcycles) and is allocated to the State General Fund to be used by the Department of Public Safety.

Oil and Gas Privilege Tax--There is an annual privilege tax that is collected by the State Department of Revenue on all persons engaged in the business of producing or severing oil or gas from beneath soil or water. Well units are taxed at a percentage of the gross value of the oil or gas at the point of production. The privilege tax varies according to type of well (offshore or onshore), permit date, and well classification (discovery, replacement, development, or occluded gas). After the costs of collection, offshore production proceeds are distributed as follows: 90% of net taxes are deposited into the State General Fund and the remaining 10% of net taxes to the counties in which the oil or gas was produced. After the cost of collection, the onshore production proceeds are distributed as follows: 25% to the State General Fund; 66 2/3% of the remaining 75% to be distributed (1) 25% to the counties in which the oil or gas was produced; (2) 10% to the municipalities in which the oil or gas was produced; (3) of the first $150,000 remaining, or any part thereof, 50% to the State General Fund, 42.5% to the county wherein the oil or gas was produced, and 7.5% to the cities therein on a population basis, and (4) the balance is distributed 84% to the State General Fund, 14% to the county in which the oil or gas was produced and 2% to the cities therein on a population basis; 16 2/3% of the remaining 75% to the State General Fund; and 16 2/3% of the remaining 75% to the counties in which oil or gas was produced. A temporary oil & gas privilege tax of 1% on offshore production and .5% on onshore production was levied for the period July 1, 2004 through June 30, 2005 and distributed to the State General Fund.

Oil and Gas Production Tax--Tax on the production of oil and natural gas severed from any well or wells in Alabama. The tax rate is 2% of the gross value of the oil or gas at the point of production. The tax is collected by the State Department of Revenue with all proceeds deposited into the State General Fund.

Pari-Mutuel Tax--A privilege tax levied on persons engaged in the business of operating a dog or horse track, based upon the total amount wagered on all pari-mutuel races. In 1988, the Alabama Legislature passed a 1% privilege tax on the pari-mutuel pool at any dog track in the State. The Legislature also enacted an additional 1% privilege tax on the pari-mutuel pool on all pari-mutuel races requiring the selection of three or more racers. The tax is collected by the State Department of Revenue, and after the cost of collection is deducted, all proceeds are deposited into the State General Fund.

Privilege License Tax--This assessment is collected by the probate judges, license commissioners and the State Department of Revenue from persons or firms, corporations, companies, associations, receivers or trustees engaged in a business, vocation or profession. The receipts are distributed 50% to the State General Fund and 50% to the respective counties where such receipts are collected.

Public Utilities Tax--A license tax of 2.2% on each dollar of gross receipts for the preceding year is imposed on all persons operating a public utility (except railroads, express companies, telephone and telegraph companies) and is collected by the State Department of Revenue. After a deduction for costs of collection, 15% of the net receipts are deposited into the State General Fund and 85% into the Special Mental Health Trust Fund.

Sales Tax--A tax imposed on the gross proceeds of sales of all taxable items to individuals and/or corporations within the State and on the gross proceeds from conducting or operating public places of amusement or entertainment. Sales taxes are collected by the State Department of Revenue. Act 99-650 changed the distribution of the 2% sales tax whereas after the deduction of collection costs, 42% of the 2% tax on mobile home set-up materials and related supplies, automotive vehicles, truck trailers, semi-trailers or house trailers is deposited into the State General Fund. Of the remaining proceeds, $189,000 is distributed to the 67 counties on the basis of population; $189,000 is distributed to the 67 counties equally; $1,322,000 is distributed to the Department of Human Resources for general welfare purposes; an amount equal to 5% of the value of food stamp benefits issued statewide in excess of the amount paid by recipients for administation of the Food Stamp Program is distributed to the Department of Human Resources; an amount for debt service is distributed to the Alabama Public School and College Authority; and the balance is deposited into the Education Trust Fund. Act 2000-731 changed the distribution to the current distribution of: the Department of Human Resources, the Department of Conservation and Natural Resources, and the State General Fund. Beginning July 1, 2004, 51.3% of the 2% tax on mobile home set-up materials and related supplies, automotive vehicles, truck trailers, semi trailers or house trailers is deposited into the State General Fund and 48.7% is deposited into the Education Trust Fund; and beginning October 1, 2005, 60.6% of the 2% tax is deposited into the State General Fund and 39.4% deposited into the Education Trust Fund, until September 30, 2006.

Tennessee Valley Authority Payments--The Tennessee Valley Authority ("TVA") makes payments in lieu of all taxes to the states wherein its power properties and operations are located. The State distributes the proceeds as follows: TVA-served counties-78%; and non-TVA counties in which the sale of alcoholic beverages is prohibited by law-5%; State General Fund-remainder. Before the State's share is deposited into the State General Fund, a required amount is deposited into the debt service accounts for the Tennessee Valley Exhibit Commission Bonds and the Alabama Incentives Financing Authority Bonds.

Use Tax--An excise tax on the storage, use, or other consumption in this state of tangible personal property, machines used in mining, quarrying, compounding, processing, and manufacturing of tangible personal property; automotive vehicles, motorboats, truck trailers, semi trailers, or house trailers and mobile home set-up materials and supplies; farm machinery or equipment; and the above property when used in the performance of a contract. This tax is paid on items purchased outside Alabama for consumption or use inside the state, unless the property is imported from a state having a reciprocal agreement with Alabama, and a tax equal to or greater than the Alabama tax was paid in the other state. If the amount of the tax paid to the other state is less than the Alabama tax, then the difference must be paid to Alabama. The Department of Revenue collects this tax. After deducting the cost of collection, 42% of the 2% tax on automotive vehicles, truck trailers, semi trailers or house trailers and mobile home set-up materials and supplies is distributed to the State General Fund and all remaining proceeds are distributed to the Education Trust Fund. Beginning July 1, 2004, 51.3% of the 2% tax on mobile home set-up materials and related supplies, automotive vehicles, truck trailers, semi trailers or house trailers is deposited into the State General Fund; and beginning October 1, 2005, 60.6% of the 2% tax is deposited into the State General Fund, until September 30, 2006.

Utility Gross Receipts Tax and Utility Service Use Tax--A privilege tax on every utility furnishing utility services is collected by the State Department of Revenue. After a deduction for cost of collection and a deduction of $14,600,000 for deposit into the Special Mental Health Trust Fund, the remainder of the proceeds from this tax are deposited into the Education Trust Fund. The Utility Service Use Tax, complementary to the Utility Gross Receipts Tax, is levied on the sales price of utility services stored, used or otherwise consumed in Alabama, regardless of whether the utility is engaged in business in Alabama, at the same rates as the Utility Gross Receipts Tax. After a deduction for cost of collection, the proceeds of this tax are deposited into the Education Trust Fund.

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