This glossary includes keywords used in The Alabama Tax and Budget Handbook, as well as other terms commonly encountered in tax and budget debates. Terms that are italicized in the definitions are defined elsewhere in this glossary.
act – a bill that has become law.
adjusted gross income – total annual earnings after subtracting certain expenses (such as qualified retirement contributions) but before subtracting deductions and exemptions. Compare taxable income.
ad valorem – a Latin phrase meaning “according to value.” See property tax.
Alabama Department of Revenue – the state agency that administers tax programs and collects taxes in Alabama. The federal tax authority is the Internal Revenue Service.
Alabama Trust Fund – a savings fund established to capture future revenues from sales of offshore drilling rights and from royalties on the resulting gas production.
apportionment – the process of determining what percentage of businesses’ profits are subject to a given state’s corporate income tax or other business taxes.
appropriation – an amount of money approved by the Legislature for a certain purpose. See also conditional appropriation; supplemental appropriation.
appraised value – an expert opinion of the current market value of a property.
assessed value – a tax assessor’s determination of property value, based on appraised value and lowered in Alabama by a property classification factor.
assessment ratio – a formula set by law to determine the portion of a property’s appraised value that is subject to tax. See also property tax.
balanced budget – an income and spending plan for which projected income is equal to or greater than projected spending. Alabama law requires the Legislature to balance the budget every year.
Big Mule – a political term coined in 1926 to describe influential wealthy industrialists and utility executives who influenced Alabama politics. See also Planters.
bill – a proposed piece of legislation to be considered by the Legislature for passage (or enactment) into law. See also act.
Black Belt – Alabama’s Black Belt area is part of a larger national Black Belt region that stretches from Texas to Virginia. This region has historically been home to “the richest soil and the poorest people” in the United States.
budget – a spending plan for a fiscal year. See also governor’s budget proposal.
Budget Stabilization Fund – a reserve balance that is set aside during good economic times to protect the state budget from cyclical changes in revenues and expenses that may occur during poor economic times.
business privilege tax – a tax on the net worth of companies doing business in Alabama. The business privilege tax replaced the franchise tax in 1999.
chamber – a deliberative assembly within a legislature that generally meets and votes separately from the legislature’s other chambers. In Alabama, a chamber refers to either the House of Representatives or the Senate.
circuit breakers – a targeted property tax reduction program that operates like an electric circuit breaker, which cuts off the flow of current before an electrical surge can cause damage. Circuit breaker programs account for ability to pay when calculating a property tax bill and cap property tax payments that exceed a certain percentage of income.
combined reporting – a tax practice that treats a “parent” corporation and its subsidiaries as one corporation for corporate income tax purposes. Many large corporations avoid taxes by artificially moving profits out of the states where they are earned and into states where they will be taxed either at lower rates or not at all. States that have adopted combined reporting can prevent many of these tax avoidance strategies.
conditional appropriation – an amount of money approved by the Legislature for a particular purpose only if funds become available later in the fiscal year.
conference committee – a legislative committee composed of House and Senate members that meets to reconcile differences in legislation that has passed both chambers.
corporate income tax – a tax on the net income of a corporation located in Alabama or deriving income from sources within Alabama.
credit (also called tax credit) – a direct, dollar-for-dollar reduction in taxes owed. A credit reduces the amount of tax owed on income, while a deduction reduces the amount of income that is subject to taxation.
current use – the valuation of certain qualifying properties at a reduced amount based upon their use as farmland or timberland.
decouple (also called de-link) – to break the connection between a state’s tax code and certain provisions of the federal tax code.
deduction (also called tax deduction) – an expense (such as a charitable gift or mortgage interest) subtracted from adjusted gross income while figuring taxable income. See also itemized deduction; standard deduction.
dependent – a person, usually a family member, who is supported financially by another person.
dependent deduction – an amount excluded from taxable income in Alabama to help offset a taxpayer’s cost to support a child or other dependent. On federal income tax returns, this reduction is claimed through a personal exemption.
discretionary funds – money that is available to spend on things that are not considered necessary but that may be useful.
earmarking – the practice of setting aside – through constitutional provision or statutory law – revenues from particular sources for particular purposes.
earned income – money received in payment for a job or through self-employment and reported to the Internal Revenue Service (IRS) and the state for tax purposes.
Earned Income Tax Credit (EITC; also called earned income credit or EIC) – a refundable credit for low-income taxpayers who earn income above a given amount. “Refundable” means taxpayers get the full amount of the credit no matter the size of their tax bill. State EITCs often are set at a percentage of the federal EITC and can help offset the regressive effects of sales taxes.
economic incentives – cash or near-cash assistance (such as tax benefits, reductions, subsidies and rebates) provided on a discretionary basis to attract or retain business operations.
Education Trust Fund (ETF) – state revenues set aside for public education and related services at all levels. Compare General Fund.
Education Trust Fund Budget Act – annual legislation that provides the spending plan for federal, state and some local revenues set aside for education. Compare General Fund Budget Act.
Educational Opportunities Reserve Fund – a fund created in 2023 that could help offset future shortfalls in the state’s Education Trust Fund.
excise tax – a special sales tax that is levied on the purchase of a particular type of product or service, such as alcohol, tobacco or gasoline.
executive amendment – suggested changes to a vetoed bill that the house in which it originated must make for the governor to sign it into law. See veto.
Executive Budget Office (EBO) – a division of the state’s Department of Finance that prepares the governor’s budget proposal, administers legislative appropriations, estimates revenues for budget preparation and assists in drafting appropriation bills.
exemption – a portion of income on which no tax is imposed – usually intended to help shield the basic costs of living from taxation. See also farmstead exemption; homestead exemption; personal exemption.
farmstead exemption – a proposed tax code provision that would exempt a certain share of assessed value for calculating property tax on an owner-occupied farm. See also homestead exemption.
federal income tax (FIT) deduction – a deduction that allows taxpayers to write off their federal income tax payments on their state income taxes. Alabama is the only state to allow a full federal income tax deduction.
federal match – refers to a cost-sharing mechanism in which a portion of a project’s costs are paid by federal funds. Matching funds are typically stated as a percentage of the total project cost.
federal poverty measure – See poverty line.
fee – a fixed charge for a privilege or service.
fiscal note – an analysis of how a bill would increase or decrease the revenues available to fund state or local services. The Fiscal Division of the Legislative Services Agency prepares fiscal notes for the Alabama Legislature.
fiscal year (FY) – an annual accounting period. Like the federal fiscal year, Alabama’s fiscal year runs from Oct. 1 through Sept. 30 and is designated by the calendar year in which it ends. For example, fiscal year 2040 will start in October 2039.
flat tax (also called proportional tax) – a tax that is levied at the same rate on all levels of income. Compare graduated tax; progressive tax; regressive tax.
General Fund (GF) – state revenues that are not earmarked and that provide for most public services except education. Compare Education Trust Fund.
General Fund Budget Act – annual legislation that provides the spending plan for federal and state revenues supporting all non-education programs.
governor’s budget proposal – a suggested allocation of state money that the governor presents to the Legislature by the second legislative day of each regular session.
graduated tax – a type of progressive tax in which the tax rate is higher as the value of the taxed income or item increases.
gross income – the sum of all wages, salaries, profits, interest payments, rents and other forms of earnings, before any deductions or taxes. Compare adjusted gross income; taxable income.
home rule – implies that each level of government has a separate realm of authority. The state constitution could grant home rule, which would provide more ability for local governments to address local issues.
homestead exemption – a provision in the tax codes of Alabama and other states that reduces the assessed value of a primary residence by a set amount for the purpose of calculating property tax. See also farmstead exemption.
income tax – a tax on earned income and unearned income.
inflation – growth in the price level of goods and services, measured as an annual rate.
Internal Revenue Service (IRS) – the federal agency responsible for collecting taxes and administering tax programs. Alabama’s state tax authority is the Alabama Department of Revenue.
itemized deduction – an individual expense (such as mortgage interest, charitable gifts or payments for medical services) that lowers taxable income. Taxpayers itemize if their deductions exceed the standard deduction.
law – a legal document (constitution, act, regulation, ordinance, etc.) that sets rules governing a particular activity.
Legislative Services Agency (LSA) – a nonpartisan state agency that provides objective fiscal analysis (including information about tax and budget matters), legal advice and bill drafting services to Alabama legislators.
legislative session – a period when the Legislature meets, either in regular session or in special session.
levy – to impose a tax or fee on a person, business or other entity.
Lid Bill – a 1978 amendment to the Alabama Constitution that lowered the assessment ratio for farm, forest and residential property to 10% of appraised value, established a current use provision and capped the amount of property tax that can be collected overall.
local tax – a tax imposed by a local government to fund services such as water treatment, fire protection and garbage collection.
Medicaid – a health insurance program, funded by federal and state governments and operated by the state, for people with incomes below a certain level – primarily children, older adults, and people with disabilities in Alabama. Compare Medicare.
Medicare – a federal health insurance program for adults aged 65 and older and for people with disabilities. Compare Medicaid.
mill – one-tenth of a cent. A one-mill tax is equivalent to $1 per $1,000 of value.
millage rate – the number of mills that a locality or state levies on property within its authority.
payroll tax – a tax on wages that is used to finance unemployment insurance, worker compensation, disability insurance, Social Security and Medicare.
personal exemption – an amount excluded from the taxable income of any taxpayer who cannot be claimed as a dependent by another taxpayer.
Planters – members of the Legislature, typically from the Black Belt, who controlled the Alabama Legislature along with the Big Mules in the early 1900s.
poverty guidelines – standards issued by the U.S. Department of Health and Human Services to measure eligibility for certain federal programs. The guidelines are based on the poverty thresholds but are simpler and more current.
poverty line (formally called the federal poverty measure) – a U.S. government standard used to classify people as “poor.” There are two versions: poverty thresholds and poverty guidelines. Both versions vary with family size and ages.
poverty thresholds – standards issued by the U.S. Census Bureau to estimate the number of people living in poverty. The thresholds, issued in late summer for the previous calendar year, are more detailed than poverty guidelines.
progressive tax – a tax that requires people who make more money to pay a bigger share of their income than those who make less. A tax can be made progressive by the use of graduated rates, exemptions, deductions or credits. See also graduated tax; compare regressive tax.
property classification – a set of categories of real estate defined by state law for the purpose of assigning assessment ratios for property tax.
property tax (also called ad valorem tax) – a tax that a state or local government levies on the assessed value of property.
proportional tax – See flat tax.
proration – the process of cutting agency budgets equally across the board when revenues fall short of expectations.
Public School Fund – a state fund that helps pay for public school construction and renovation projects. The Public School Fund receives 3 mills of revenue from the state property tax.
rainy day fund (also called reserve fund) – money set aside in a budget or borrowed from a government account for emergency use.
Reconstruction – the period after the Civil War during which attempts were made to redress the inequities of slavery and its political, social and economic legacy and to solve the problems arising from the readmission to the Union of the 11 states that had seceded.
regressive tax – a tax that requires people who make less money to pay a bigger share of their income than people who make more money. Compare progressive tax.
regular session – the annual period when the Alabama Legislature meets, limited to 30 meeting days within a period of 105 calendar days beginning in the first quarter of the year. Compare special session.
reserve fund – See rainy day fund.
revenue – money collected by a government from the public in taxes and fees.
revenue forecast – predicts revenue over a certain time period, usually one year.
Rolling Reserve Act – a 2011 state law that limits Education Trust Fund spending based on average revenue growth in prior budget years. Revenue in excess of the spending cap goes toward an account designed to prevent proration or toward capital expenses like school bus purchases or school building repairs.
sales tax – a tax that a state or locality levies on the retail price of an item, collected by the retailer.
simplified sellers use tax (SSUT) – allows eligible sellers to participate in a program to collect, report and remit a flat 8% sellers use tax on all sales made into Alabama.
sin tax – a tax that is levied on products or activities that some people consider to be vices, such as cigarettes, liquor or gambling.
Social Security – a social insurance program that provides most of the nation’s workforce with retirement, disability and survivor benefits.
special sales tax – a tax charged on certain goods or activities that is higher than the normal sales tax.
special session – a convening of the Legislature, limited to 12 meeting days within 30 calendar days, that the governor calls for a specific purpose. Any measures not included in the “call” require a two-thirds majority vote in both chambers to pass. Compare regular session.
standard deduction – a fixed amount that taxpayers who do not claim itemized deductions can subtract from adjusted gross income to reduce their taxable income.
structural deficit – the inability of a government’s revenue system to keep up with normal cost increases resulting from factors like inflation and population growth. The General Fund has had a structural deficit for decades.
substitute bill – a version of a bill offered by a legislative committee. If adopted, the substitute replaces the original bill or resolution.
supplemental appropriation – an amount of money approved by the Legislature to meet current needs that were not met in the budget passed in an earlier session.
Supplemental Nutrition Assistance Program (SNAP) – a program that provides food assistance benefits to help people with low incomes supplement their grocery budgets.
tax – an amount charged by a government on income, goods, property, services or activities to help pay for public services like education and public safety.
tax expenditure – potential revenue forgone through tax credits and exemptions.
tax rate – the percentage of a given level of income or value paid in taxes.
tax threshold – the lowest income level subject to the income tax.
taxable income – amount of income subject to income tax (after subtracting all deductions and exemptions). Compare adjusted gross income.
unearned income – income (such as dividends, interest or rental fees) that does not result directly from the recipient’s labor. Compare earned income.
use tax – a tax on goods bought outside a locality or state for use inside it. The use tax is equivalent to a sales tax on such goods. It is commonly discussed in the context of internet or mail-order purchases.
utility property – all property and assets of a company and its subsidiaries used principally in electric, natural gas and water operations.
veto – the power of the governor to refuse to approve a bill and thus prevent its enactment into law. In Alabama, if a majority of the members elected to each chamber vote to approve a vetoed bill as the Legislature passed it – a process known as overriding a veto – the bill becomes a law despite the governor’s veto. See also executive amendment.