Alabama Policy Institute Ranks Top “Business-Friendly” Cities of Alabama

State & Local Tax Alert: Alabama Edition

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Author(s) , , , , Justin B. Cureton*

The Alabama Policy Institute (API), an independent, nonprofit research and education organization headquartered in Birmingham that focuses on state public policy issues, recently released its ranking of the top fifty “Business-Friendly” cities in Alabama. While Alabama clearly has the reputation for being a business-friendly state (witness the recent Airbus groundbreaking and Mercedes-Benz plant expansion), the API study looked closely at the 50 most populated cities in the state to rank them, based on four distinct factors: economic vitality, business tax burden, “community allure,” and transportation infrastructure. The latter two factors comprised 35 percent of the ranking, while economic vitality and business tax burden made up the largest portion of the rankings.

The API report concluded that successful cities boast several common characteristics: responsible, limited governance; reasonable property and sales/use tax rates; quality school systems; low crime rate; and access to transportation infrastructure. Fairhope topped the rankings as the state’s most business-friendly city, with Millbrook and Athens rounding out the top three. Other notable cities near the top included Prattville at number six and Montgomery at number eight. More notable, however, are those cities ranked near the bottom of the list. Surprisingly, Huntsville ranked thirty-sixth on the list and Mobile ranked fortieth. Perhaps not so surprisingly, Birmingham ranked forty-seventh.

In the business tax burden category, Birmingham ranked in the bottom five cities solely based on its business property taxes. After factoring in its 10 percent sales/use tax, however, Birmingham fell to next to last in that category. Oddly, the study did not consider municipal business license taxes, which probably would have caused Birmingham to rank last in this category. To our knowledge, no other city in the state imposes higher business license taxes, largely as a result of former Mayor Larry Langford’s effort in 2007 to fund a still-nonexistent domed stadium by enacting a 1 percent sales/use tax increase and doubling business license tax rates. Based on our own experience and reports from other tax practitioners and businesses, Birmingham’s revenue department aggressively enforces the business license tax, and many taxpayers report that city revenue examiners have proposed moving them retroactively to a different business license classification, not surprisingly with a higher tax rate. Their administrative appeals have generally been unsuccessful.

As the API report acknowledges, every city in Alabama has room for improvement (the highest ranked city only had a composite score of 74/100). But those cities near the bottom should pay extra attention to this study.

“API recognizes that all our cities are important to building a strong state economy,” said API President Gary Palmer. “Our objective with this report is to encourage cities to closely evaluate the business climate they have created and implement reforms that will not only improve their ranking but help Alabama become one of the best states in the nation for starting or relocating a business.”

*Justin B. Cureton contributed to this article and is a third-year law student at Cumberland School of Law at Samford University in Birmingham.