Due to the structure of this system and the political and legal boundaries involved, the likelihood of a statewide increase in the property tax looks slim.
Taxes on commercial and industrial property are assessed at 20 percent of their value, while property owned by public utilities is assessed at 30 percent of its value. Thus, an increase in property tax would be felt most by businesses and utilities. This burden would — in turn — very likely be passed along to the taxpayers of Alabama.
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Based on this trickle-down effect, caps were long ago placed on assessed values for property tax in the Alabama Constitution, as well as the need for approval of any proposed increase by the Alabama Legislature and, in many cases, a public referendum. There is generally a 75 mill cap imposed by state law. With the limits placed on property tax collections, the state has over the years explored other avenues to gather revenue. Alabama has found itself relying heavily on the sales tax. Imposing one of the highest aggregate state, city, county sales tax rates in the country; the burden of this heavy tax is felt disproportionately by low— and moderate- income families.
The PARCA report points out that Alabama remains one of three states that still applies its sales tax fully to food or grocery purchases for home consumption without offering any relief for low- and moderate- income families who don't qualify for the federal SNAP program. Given that the poor pay a greater share of their income toward food essentials and therefore toward sales tax, a recent analysis by the Institute on Taxation and Economic Policy reported that Alabama has the 18 th most regressive tax system in the nation.
This trend of taxes weighing heavily on the poor also manifests itself in the assessment of income taxes.
Despite recent legislative efforts, Alabama still imposes one of the lowest thresholds for taxing income in the nation. The essentially 5 percent flat tax ensures that low-income families start being taxed earlier than those of the same economic standing in many other states.
The skewed nature of this statistic is exacerbated because Alabama is one of the few states that allows its residents to deduct the entire amount they pay in federal income and payroll taxes. On the other hand, we should also consider another form of funding for state and local governments various business taxes.
This percentage places Alabama 24th in the nation and 6th among the southeastern states. Thanks to our intern, Christopher Nett, a senior at Birmingham-Southern College majoring in accounting, for his invaluable assistance in preparing this alert. In order to appeal the value assigned to a property and therefore contest the amount of property tax assessed, the property owner may file a written protest with the County Board of Equalization in the county in which the property is located. It is important to note this protest must be filed within thirty 30 days after the publication of the valuation of the subject property.
Should the property owner win his appeal, Alabama law provides a mechanism for the state, county, school board, or municipality to issue the appropriate refund to the property owner. If the property owner fails to pay the assessed property taxes, the court must dismiss the appeal.
What happens if property taxes are not paid? If property taxes go unpaid, a tax lien may be placed on the property. Additionally, once a tax lien is placed upon the property, the subject property can be sold to the highest bidder at a tax sale or the tax lien can be sold at auction. These sales typically occur each year in May.
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It should be noted that property owners have three 3 years from the date of the sale to exercise a right of redemption by paying all taxes, interest, fees, and penalties. The new law states that if the tax lien is sold at auction, as opposed to the property itself being sold, the holder of the tax lien certificate may bring an action to foreclose the right of redemption and quiet title to the property in the name of the holder of the tax lien.
This action must be brought after the three 3 year right of redemption has passed, but not later than ten 10 years after the auction. Issues to Note : Unpaid property taxes affect the sale of a home. There are several potential road blocks that may occur when property being sold has unpaid taxes. First, if a tax lien has been placed on the property, a potential buyer cannot obtain clear title to the property until the property taxes are paid.
For tax deduction purposes, the IRS assumes the seller has paid the property taxes up until the date of the sale, and the buyer is responsible for the property taxes from the date of the sale through the remainder of the year unless otherwise stated in the sales contract. Thus, if property taxes are unpaid at the time of the sale, the IRS still assumes the seller has paid the property taxes up until the date of the sale and may allow the seller to claim a tax deduction for the property taxes if not notified that the buyer has paid the property tax for the entire year.
At closing, the seller and buyer are assigned a pro rata share of the real property taxes. The split is based on the amount of time each party owns the house during the fiscal year and the estimated taxes due the following October 1st. Because the taxes are estimated, the actual taxes owed may increase or decrease depending on the appraised value. This may leave the buyer with a higher tax on October 1. Practitioner Tips:. For example, a county millage rate may include general fund, road and bridge, and fire protection.
If no newspaper is published in the county, notice shall be posted in three public places in each precinct of the county. No specific date for publication is required. See Ala. No attorney-client relationship is created by reading, viewing, opening, or other action related to this article.
The Balancing Act
If legal advice or other expert assistance is required, the services of a competent professional should be sought. Specific circumstances may change the applicable law or advice a competent individual would provide. In addition, this information is not meant to supplant or in any way replace Errors and Omissions Insurance or other insurance coverage.