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Franchise Tax Sinks Alabama to Bottom of Competitiveness Ranking

Ernst & Young and the Council On State Taxation, in April, released their annual ranking of states with the most favorable tax policies for attracting new industry, and Alabama, along with five other Deep South states, ranked surprisingly low.

Alabama came in at #43, followed by Mississippi, Tennessee and Louisiana.

Heavily weighing down these four states and others in the footrace were franchise taxes. State franchise taxes are usually levied on the net worth of a company. Only 20 states levy franchise taxes, with most of those levies applied to the value of capital stock. Alabama’s franchise tax is 0.18 percent, in the middle of the ranks of the 20 states with franchise taxes.

Maine ranked at the top of the list in competitiveness, with an effective tax rate of 3.0 percent, compared to Alabama’s effective rate of 9.7 percent. Maine has no franchise tax. And, while Maine’s income tax of 8.3 percent is above the national average of 6.7 percent (Alabama: 6.5 percent), it compared favorably for being evenly distributed across industry sectors. “Maine’s favorable income apportionment regime more than offsets the rate differential,” the auditors calculated.

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