All Alabamians who own cars, trucks or boats, or whose home is valued at $52,280 or more, would pay more taxes under Gov. Bob Riley’s $1.2 billion tax package, based on a preliminary analysis of the plan.Farmers as well as working families who itemize deductions on their state income tax returns would be hit especially hard by the plan. In addition, all Alabamians can expect to pay higher sales taxes on vehicles; higher recording costs when they buy a new home; and a new tax on automobile and appliance repairs.According to the governor, increases in ad valorem (property) taxes will generate $400 million. Under the Riley plan, all property would be taxed based on 100 percent of its assessed value at the state level. Currently, homes, farms and timberland are taxed based on 10 percent of their assessed value; businesses, 20 percent; utilities, 30 percent; and vehicles, 15 percent. The plan also lowers the state millage rate from 6.5 mills to 3.5 mills and raises the homestead exemption from $40,000 to $50,000. Alabama farmers, who already are reeling from years of bad weather and low commodity prices, could see the state portion of their property taxes increase by 550 percent or more under the plan. The plan would raise the current use valuation of their cropland by 22 percent.Meanwhile, a family living in a $150,000 home would pay $278.50 more a year in state property taxes–an increase of 390 percent. In addition, that same family would pay $100 more a year in taxes on their two cars (based on a total market value $40,000).Property taxes, however, account for less than half of Riley’s total tax package. He expects changes to state income tax laws to generate an additional $409 million.The plan calls for raising the threshold at which the state begins collecting income taxes from $4,600 to $19,950 for a family of four. The legislation also would establish a graduated income tax rate of 5 percent for singles making less than $75,000 and couples making less than $150,000. Those who earn more would be taxed at 6 percent.State Finance Director Drayton Nabers Jr. said these changes could reduce the state income tax bill for a family of four with an annual income of $70,000 by as much as $150 a year. However, the plan’s elimination of all income tax deductions except mortgage interest, charitable contributions and medical expenses would likely result in a higher tax bill for those who itemize their deductions.For example, a family of four making $70,000 with itemized deductions totaling $17,070 (under the current plan) would pay $392 more in state income taxes under the Riley plan, an increase of 18.5 percent. A family of three with total income of $54,500 and deductions of $12,851 would see their tax bill jump $306.75. But, a family of four making $150,000 with deductions of $25,011 would pay 29.5 percent more–that’s an extra $1,432.The difference between these examples and Naber’s estimates are primarily due to Riley’s planned elimination of the state income tax deductions for federal income taxes, FICA tax (Social Security and Medicare) and real estate taxes.Other provisions of the Riley plan include doubling the filing charges for mortgages and deeds; charging sales tax on the labor portion of automobile and applicance repairs; increasing the sales tax on cars and increasing the cigarette tax from 16.5 cents per pack to 31 cents.
The governor’s office predicts proposed tax changes for banks, insurance companies and other businesses would generate another $65 million–much of which could be passed on to their customers.Riley unveiled the $1.2 billion tax package May 19 after calling a special session of the Alabama Legislature to resolve a $600 million shortfall in the state’s budgets.