The ultimate guide to Alabama sales tax

2024 overview of sales tax in Alabama

Welcome to Kintsugi's rundown on tax rates in the state of Alabama. The state of Alabama sales tax rates can vary depending on state, county/city, and local tax rates.

The base state sales tax rate is 4%. Among counties, the highest sales tax rate is found in Wilcox County at 6%, while the lowest is in Bullock County at 2%.

As for districts, the highest district sales tax rate is 3%, observed in the cities of Montgomery and Birmingham's special taxing districts. The lowest district rate is 1% in many smaller localities.

Sales tax range in Alabama

Statewide Sales Tax

2024: The base sales tax rate in Alabama holds steady at 4%.

2023: The identical statewide rate was 4%.

County Sales Tax

2024: County sales taxation rates in Alabama range between 0.5% and 5%, varying by county. Jefferson County maintains a rate of 2%, while Mobile County slightly increases from 2.5% to 2.75%.

2023: The range was also 0.5% to 5%, but Jefferson County maintained 2%, and Mobile County was lower at 2.5%.

City Sales Tax

2024: City tax rates show more variability, fluctuating between 1% and 7.5%. Birmingham holds at 4%, with Montgomery adjusting from 3.5% to 3.75%.

2023: The range was the same at 1% to 7.5%. However, Birmingham had 4%, and Montgomery's was lower at 3.5%.

Combined Sales Tax

2024: Combining state, county, and city taxes, the total sales tax rates in Alabama can reach from 5.5% to 10.5%. Notably, consumers in Montgomery could experience up to 11%, reflecting the increased city tax.

2023: Similarly, the combined rates ranged from 5.5% to 10.5%, though Montgomery's overall rate maxed at 10.5%.

Special Sales Tax Districts

2024: Specific districts exhibit unique rates supporting local projects. For instance, Auburn's special district tax climbs from 1% to 1.25%.

2023: Auburn's rate was 1%, showing a lower rate within special districts.

Calculating Alabama sales tax

Identify Taxable Items: Determine if the product or service is taxable in Alabama. Common taxable items include tangible personal property, some services, and digital goods.

State Sales Tax Rate: The base state sales tax rate in Alabama is 4%.

Local Sales Tax Rates: Counties and cities can levy additional sales taxes. Local tax rates vary depending on the municipality. Use the Alabama Department of Revenue's website or a tax rate table for specific rates.

E-Commerce Sales: E-commerce transactions are subject to the same state and local sales tax rates as brick-and-mortar sales.

Out-of-State Sellers: Out-of-state sellers with nexus in Alabama must collect state and local sales tax. Nexus is established through physical presence or economic threshold (e.g., $250,000 in sales).

Software as a Service (SaaS): SaaS is considered a taxable service in Alabama. The combined state and local tax rate applies to SaaS subscriptions.

Services: Not all services are taxable; primarily tangible personal property-related services are. Check the Alabama Department of Revenue for specifics on taxable and non-taxable services.

Calculating Sales Tax: Example Formula: Sales Price × (State Tax Rate + Local Tax Rate) = Total Sales Tax. For a $100 purchase in a city with a 3% local tax: $100 × (4% + 3%) = $100 × 0.07 = $7.

Collecting Tax: Ensure the correct amount of sales tax is collected at the time of sale.

Filing and Remittance: File sales tax returns periodically (monthly, quarterly, or annually) as required. Remit collected taxes to the Alabama Department of Revenue and respective local authorities.

Exemptions: Certain sales may be exempt, such as wholesale transactions or sales to non-profits.

Understanding use tax in Alabama

Use tax in Alabama, which is often compared to the Alabama sales tax rate, is a tax levied on goods purchased outside the state for use, storage, or consumption within the state.

Essentially, if you buy something from an out-of-state retailer and do not pay Alabama sales tax at the time of purchase, you're required to pay use tax.

The main purpose of the use tax is to ensure a level playing field for local businesses who do have to collect sales tax and to prevent the loss of tax revenue that the state would otherwise lose from out-of-state purchases.

The use tax rate in Alabama is the same as the sales tax rate, which is currently 4% at the state level. However, additional county and municipal use tax rates can also apply, which can make the effective rate higher depending on where you live or use the purchased item.

Individuals and businesses alike are subject to use tax. For individuals, this primarily means purchases from online retailers, mail-order companies, or out-of-state sellers who do not charge Alabama sales tax. Businesses need to be especially diligent as they often buy equipment, supplies, and services from out-of-state vendors.

To comply with use tax regulations, individuals can report and pay use tax on their Alabama state income tax returns. For businesses, they typically need to file regular use tax returns, often monthly or quarterly, depending on their volume of out-of-state purchases.

Recent changes to Alabama sales tax

Understanding the state of Alabama tax rate is crucial for effective financial management. Alabama imposes a state sales tax rate of 4%, which serves as the baseline for most transactions. However, local jurisdictions can add their own taxes, leading to varying total sales tax rates across different areas. Additionally, Alabama has a state income tax with rates ranging from 2% to 5%, depending on income levels. For accurate financial planning and compliance, it's important to be aware of both the state and local tax rates that may affect transactions and income within Alabama.

In 2024, Alabama enacted several changes to its sales tax laws, effective from January 1, 2024. These modifications compared to the 2023 rates and regulations are as follows:

General Sales Tax Rate

The general state sales tax rate in Alabama remained unchanged at 4%.

However, some localities adjusted their local sales tax rates, leading to an overall increase or decrease in total sales tax in various regions.

Groceries and Essentials

The sales tax rate on groceries and essential items was reduced from 4% in 2023 to 3% in 2024.

This change was implemented to provide relief to residents facing inflationary pressures.

Local taxes might still apply.

Remote Sellers and Online Sales

In 2024, Alabama increased the economic nexus threshold for remote sellers from $250,000 to $300,000 in annual sales in the state.

This aimed to streamline compliance and encourage small online retailers.

Agricultural Equipment

Effective in 2024, certain agricultural equipment and machinery became exempt from state sales tax, a departure from the previous partial exemption that required documentation and approval processes.

Exemptions for Small Businesses

Alabama introduced a new exemption for small businesses with gross sales under $100,000 annually, relieving them from state sales tax obligations to foster entrepreneurship and small business growth.

This threshold was previously set at $75,000 in 2023.

Electric Vehicles

Starting in 2024, electric vehicles (EVs) purchased in the state are subject to a reduced sales tax rate of 2%, down from 4% in 2023.

This measure was part of Alabama's initiative to promote greener transportation options.

Excise and discretionary taxes and other sales tax considerations in Alabama

General Sales Tax

State Rate: Alabama has a state sales tax rate of 4%.

Local Rates: In addition to the state rate, counties and municipalities can levy their own sales taxes, which can significantly increase the overall rate. Some areas may have combined rates exceeding 10%.

Special Excise Taxes

Alcoholic Beverages: Alabama imposes various excise taxes on alcoholic beverages. For example, beer is taxed based on volume, while wine and spirits have their own specific rates.

Tobacco Products: Cigarettes are subject to both state excise taxes and additional local taxes. Other tobacco products also have state excise taxes.

Fuel Taxes: Fuel (gasoline and diesel) is taxed both at the state level and locally. As of 2024, the state rate is 26 cents per gallon for gasoline and 27 cents per gallon for diesel.

Discretionary Taxes

Lodging Tax: There is a statewide transient occupancy tax, commonly known as the lodging tax, which applies to hotel and motel stays. Local jurisdictions can add additional rates on top of the state rate.

Rental and Leasing Transactions: Special rental and leasing taxes can apply, especially for vehicle and equipment rentals.

Other Considerations

Tax Holidays: Alabama usually has tax holidays where certain items are exempt from sales tax, such as back-to-school supplies in late July or early August.

Exemptions: Various items such as prescription medications, certain medical devices, and groceries are exempt from state sales tax, although local sales tax may still apply to some of these items.

Additional Notes

Marketplace Facilitators: As of 2024, marketplace facilitators are required to collect and remit sales tax on behalf of third-party sellers for sales made through their platforms.

Remote Sellers: Out-of-state sellers who exceed certain sales thresholds must also collect and remit Alabama sales tax.

Understanding nexus in Alabama for local and out-of-state sellers

Physical nexus

In 2024, Alabama's physical nexus laws for sales tax have seen some critical updates compared to 2023.

2023

• Physical presence included having an office, place of business, or warehouse in Alabama.
• Having employees or representatives in the state conducting business was a factor.
• Owning tangible personal property in Alabama counted towards physical nexus.
• Attending trade shows or conferences in the state could establish nexus.
• Regularly delivering products with company vehicles created nexus.

2024

• The definition of physical presence continues to include offices and warehouses, with increased scrutiny on temporary business locations.
• Employing staff in Alabama remains a factor but now includes remote employees working from home.
• Ownership of tangible personal property is still relevant, with a new focus on temporary storage facilities.
• Attendance at trade shows or conferences now requires a higher frequency for nexus determination.
• Regular deliveries using company vehicles still create nexus, with stricter regulations on frequency and regularity.

Economic nexus

In 2024, Alabama's economic nexus thresholds for sales tax are subject to ongoing adjustments:

Remote Sellers and Threshold

2023: Remote sellers were required to register for Alabama sales tax if they had $250,000 in sales and engaged in 200 or more separate transactions within the state.

2024: The threshold remains at $250,000 in sales; however, the transaction count requirement is eliminated, streamlining compliance.

Marketplace Facilitators

2023: Marketplace facilitators were obligated to collect and remit sales tax if their total sales met the $250,000 threshold.

2024: The 2024 rules maintain the $250,000 threshold for marketplace facilitators but include more detailed reporting requirements to enhance transparency.

Digital Goods and Services

2023: Economic nexus applied to both physical goods and some digital services, causing confusion for sellers of mixed product types.

2024: Clearer guidelines have been issued, specifically delineating which digital goods and services fall under economic nexus, thereby reducing ambiguity.

Monthly Filing for Remote Sellers

2023: Remote sellers required to file monthly returns if their sales exceeded $250,000.

2024: A more flexible filing schedule is introduced, allowing quarterly filing for businesses that meet specific criteria, aimed at reducing administrative burden.

Penalties for Non-Compliance

2023: Penalties for non-compliance were assessed monthly, often including steep interest rates on unpaid taxes.

2024: The penalty structure has been revised to offer more lenient terms for first-time offenders, encouraging voluntary compliance while maintaining strict consequences for repeat violations.

Affiliate nexus

In 2024, Alabama has introduced revisions to its affiliate nexus laws for sales tax, which are different from the provisions in 2023:

Remote Sellers Without Physical Presence

2023: Remote sellers without physical presence must collect sales tax if annual sales exceed $250,000.

2024: The threshold remains $250,000, but there is stricter enforcement on timely tax remittance.

With Physical Presence

2023: Physical presence included warehouses, offices, and employees.

2024: Affiliates generating customer leads via links or other means are explicitly stated to establish nexus.

Marketplace Facilitators

2023: Marketplace facilitators responsible for collecting sales tax if cumulative sales surpass $250,000.

2024: Specific accountability on facilitators for ensuring all sellers adhere to tax collection rules.

B2B Transactions

2023: Occasional B2B transactions monitored loosely, with few repercussions for sales tax non-compliance.

2024: Enhanced monitoring and penalties introduced to enforce compliance.

Sellers with Multiple State Tax Obligations

2023: Administrative burden on sellers with multiple state tax obligations not addressed.

2024: Streamlined tax return filing processes to alleviate compliance burdens.

Definition for Physical Presence

2023: Nexus laws were ambiguous about what constituted a sufficient physical presence through affiliates.

2024: Clear definitions regarding affiliates to avoid ambiguity in enforcement.

Voluntary Disclosure

2023: Voluntary disclosure programs available with leniency on back taxes.

2024: Reduced leniency periods but improved assistance for first-time compliance.

Tax Status of Digital Goods

2023: Digital goods' sales tax status not clarified.

2024: Digital goods explicitly included under taxable items, clarifying sellers' obligations.

Click-through nexus

In 2024, Alabama continues to impose a "click-through nexus" for sales tax, a policy introduced in previous years. Here's a comparison of the requirements and changes between 2023 and 2024:

Thresholds

2023: Sellers with over $250,000 in annual in-state sales needed to collect and remit sales tax.

2024: The threshold remains $250,000, ensuring vendors exceeding this amount must comply.

Affiliates

2023: Businesses with in-state affiliates facilitating sales were subject to tax obligations.

2024: The rule continues, with no modifications to business relationships included under consideration.

Economic Nexus Expansion

2023: The nexus was primarily around physical presence and direct click-through referrals.

2024: Economic nexus definitions expanded slightly to include a broader range of remote activities beyond mere direct referrals.

Tax Rate

2023: The state sales tax rate was set at 4%.

2024: There are no changes to the state rate, remaining steady at 4%.

Compliance Mechanisms

2023: Enforcement was reinforced through automated notifications and penalties for non-compliance.

2024: Measures remain strict, adding more sophisticated tracking of remote transactions.

Implementation Support

2023: Guidance was available through online portals, with limited engagement options.

2024: Enhanced support is offered via expanded online resources and virtual help desks.

Marketplace nexus

As of 2024, Alabama's marketplace nexus for sales tax encompasses several key changes from its 2023 regulations. Here's a comparison of the specifics for each year:

Threshold

In 2023, the threshold for a marketplace facilitator to collect and remit sales tax was $250,000 in annual sales.

In 2024, this threshold has been reduced to $100,000 in annual sales, increasing the number of businesses required to comply.

Registration

In 2023, marketplace facilitators had to register with the Alabama Department of Revenue by filing a specific form.

In 2024, the registration process has been streamlined, allowing facilitators to register online through a more user-friendly interface.

Reporting

Detailed transaction reporting was required for marketplace facilitators in 2023.

In 2024, the reporting requirements have been simplified, reducing the frequency and detail of transaction reports necessary.

Compliance

Penalties for non-compliance in 2023 included fines and back taxes.

In 2024, the penalty structure remains but additional educational resources and compliance assistance have been introduced to help facilitators adhere to the new rules.

Collection

The responsibility to collect and remit sales tax in 2023 fell directly on marketplace facilitators who met the threshold.

This holds true in 2024, but the new lower threshold broadens the scope of this requirement.

Trade shows

• Exhibitors at trade shows may be required to collect and remit sales tax on qualifying sales transactions.
• A special event license may be mandatory for businesses participating in trade shows.
• Report all taxable sales on Alabama Department of Revenue forms.
• Sales tax rate for Alabama in 2024 is 4%, with additional local taxes possible.
• Maintain detailed records of sales and tax collected during trade shows for compliance purposes.
• Nexus standards may determine the obligation to collect taxes; physical presence at trade shows could establish nexus.
• Register with the Alabama Department of Revenue before collecting sales tax.
• File sales tax returns regularly, typically monthly or quarterly, depending on business volume and requirements.
• Late filings or payments may incur penalties and interest charges.
• Exemptions may be available for certain goods; verify specific product eligibility.
• Ensure all employees and representatives understand tax obligations and procedures.
• Digital sales and services provided at tradeshows may also be subject to tax.
• Consult Alabama’s specific tax codes and regulations as they may be subject to change.

Fulfillment by Amazon and Nexus

Fulfillment by Amazon (FBA) is a service offered by Amazon that allows sellers to store their products in Amazon's fulfillment centers. Amazon takes care of storage, packaging, and shipping the products to customers.

Additionally, they handle customer service and returns for those orders. This enables sellers to leverage Amazon’s logistics network and customer service capabilities.

Regarding sales tax obligations in Alabama for 2024, sellers using FBA need to be aware of the following points:

Nexus: FBA sellers can establish a sales tax nexus in Alabama because products stored in Amazon’s fulfillment center in the state are considered a physical presence.

Sales Tax Registration: Sellers with a nexus in Alabama must register with the Alabama Department of Revenue to collect and remit sales tax.

Marketplace Facilitator Law: As of October 1, 2019, Alabama requires marketplace facilitators like Amazon to collect and remit sales tax on behalf of third-party sellers. Amazon will handle the collection and remittance of sales tax for FBA sellers.

Compliance: Although Amazon collects and remits sales tax, FBA sellers are responsible for ensuring they stay compliant with Alabama’s tax regulations. This includes maintaining accurate records and filing any necessary reports.

Use Tax: If purchasing items from out of state for use in Alabama and sales tax is not collected, the buyer must self-assess and remit use tax.

Permits, certificates and sales tax registration in Alabama

To register for sales tax in Alabama in 2024, you'll need to obtain a Sales Tax License from the Alabama Department of Revenue (ADOR). This involves submitting an online registration form through My Alabama Taxes (MAT).

You'll provide business details, owner information, and your Federal Employer Identification Number (FEIN) or Social Security Number (SSN).

Once registered, you must collect and remit sales tax on taxable sales made within the state.

Registering for sales tax collection in Alabama

To register for sales tax collection in Alabama in 2024, follow these steps:

Determine If You Need to Register: If you are selling tangible personal property, certain services, or digital goods, you likely need to register to collect sales tax.

Gather Required Information: Obtain necessary details such as your business name, address, federal Employer Identification Number (EIN), and details about your business activities.

Create an Online Account: Visit the Alabama Department of Revenue (ADOR) website and create an account for the My Alabama Taxes (MAT) online system. This platform is used for various tax-related services including sales tax registration.

Complete the Registration Application: After creating your account, log in and fill out the application for a sales tax license. You will need to provide information about your business, including its name, location, type, and the nature of the products or services you are selling.

Submit the Application: Once the application is completed, review it thoroughly to ensure all information is accurate and then submit it through the MAT system.

Receive Confirmation: After submission, you will receive a confirmation from the ADOR. If approved, you will be issued a sales tax license number which permits you to collect and remit sales tax.

Understand Your Filing Requirements: Familiarize yourself with the filing periods and deadlines for sales tax returns. Typically, this is on a monthly, quarterly, or annual basis depending on your sales volume.

Collect and Remit Sales Tax: Begin collecting sales tax from your customers at the appropriate rate and remit it to the Alabama Department of Revenue as specified in your filing schedule.

Maintain Records: Keep detailed records of sales, tax collected, and submitted returns. This will help ensure compliance and simplify audits if they occur.

Cost of registering for sales tax in Alabama in 2024

As of the most recent information available, there is no fee for registering for sales tax in Alabama.

The registration process is conducted through the Alabama Department of Revenue, and it typically involves filling out the necessary forms to obtain a Sales Tax License.

Federal tax ID requirements for registering

In Alabama, if you are registering to collect sales tax for your business, you will typically need an Employer Identification Number (EIN).

The EIN is also known as a Federal Tax Identification Number, and it is used to identify a business entity. Most businesses need an EIN for various purposes, including tax reporting and hiring employees.

To register for sales tax in Alabama, you will need to provide your EIN during the registration process. If you do not already have an EIN, you can apply for one through the Internal Revenue Service (IRS).

Here is the link to apply for an EIN directly through the IRS: Apply for an EIN online

After obtaining your EIN, you can proceed to register for a sales tax account in Alabama. You can register for a sales tax license through the Alabama Department of Revenue.

Here is the link to the Alabama Department of Revenue's online registration system: My Alabama Taxes (MAT) registration

Streamlined sales tax program and Alabama

As of 2023, Alabama is not a full member of the Streamlined Sales and Use Tax Agreement (SSUTA).

However, Alabama has taken steps toward simplifying its sales tax collection procedures by adopting certain measures similar to those in the SSUTA through the Alabama Simplified Sellers Use Tax Program (SSUT).

Acquiring a business and registering for sales tax in Alabama

If you're acquiring a business in Alabama and need to register for sales tax, here are the key steps and requirements you'll typically need to follow:

Determine the Type of Business Structure: Understand whether your business will be a sole proprietorship, partnership, corporation, LLC, etc., as this can affect the registration process.

Obtain an FEIN: You generally need a Federal Employer Identification Number (FEIN) from the IRS. This is like a social security number for your business.

Register with the Alabama Department of Revenue (ADOR):

You will need to apply for a sales tax license through the ADOR. This process is typically done online through the My Alabama Taxes (MAT) portal.

Prepare to provide detailed information about the business, including business name, physical and mailing addresses, type of business activities, and names and contact information for the principal officers or owners.

Provide Business Acquisition Details: Since you are acquiring an existing business, you may need to provide information about the previous owner, including the business acquisition date and any transitional operations.

Local Licenses and Permits: Depending on where your business is located within Alabama, you might also need to register for local sales tax permits or business licenses with city or county authorities.

Other Alabama registrations to consider

In Alabama, along with the sales tax registration, there are several other registrations and permits that businesses may need to consider, depending on the nature of the business.

Business License: Most cities and counties in Alabama require a business license to operate. Requirements can vary significantly depending on the locality.

Use Tax Registration: If you purchase items outside of Alabama for use within the state where no sales tax was collected, you might need to register for and pay use tax.

Employer Identification Number (EIN): If you plan on hiring employees, you will need to obtain an EIN from the IRS.

State Employment Taxes: If you have employees, you must register with the Alabama Department of Labor for state unemployment insurance.

Withholding Tax: You need to register for Alabama income tax withholding if you have employees.

Excise Tax Permits: Certain products, such as alcohol, tobacco, and gasoline, may require special excise tax permits and additional reporting.

Professional Licenses: If you're in a regulated profession (e.g., healthcare, law, real estate), you may need specific state-issued professional licensing.

Zoning Permits: Ensure your business location complies with local zoning laws, which might require a zoning permit.

Environmental Permits: Certain businesses that impact the environment (e.g., waste management, manufacturing) might need permits from environmental regulatory agencies.

Health Permits: If you are starting a food-related business, you will need health permits from local health departments.

Trademark Registration: If you want to protect your business name or logo within Alabama, consider registering your trademark with the Alabama Secretary of State.

Requirements for online sellers in Alabama

As of 2023, online sellers in Alabama are subject to certain obligations regarding sales tax collection.

Economic Nexus

Alabama enforces an economic nexus standard for remote sellers, which means that out-of-state sellers must collect and remit sales tax if their sales into Alabama exceed $250,000 in the previous calendar year.

This requirement applies regardless of the seller's physical presence in the state.

Simplified Sellers Use Tax (SSUT)

Alabama offers a Simplified Sellers Use Tax (SSUT) program, which allows eligible remote sellers to collect a flat 8% tax on sales made into Alabama.

This program simplifies the tax collection process and can be an attractive option for online sellers.

Registration

Online sellers who meet the economic nexus threshold must register for a sales tax permit with the Alabama Department of Revenue (ADOR).

This is necessary for compliance with the state's tax collection requirements.

Filing and Remittance

Once registered, online sellers are required to file sales tax returns and remit the collected taxes to the Alabama Department of Revenue according to the state’s schedule (which can be monthly, quarterly, or annually, depending on the volume of sales).

Marketplace Facilitators

If selling through a marketplace facilitator like Amazon, Etsy, or eBay, it's important to note that these platforms are responsible for collecting and remitting sales tax on behalf of their third-party sellers in Alabama.

Collecting sales tax in Alabama

In 2024, retailers must register with the Alabama Department of Revenue, determine applicable sales tax rates for their goods or services, and ensure accurate reporting and remittance to stay compliant with the state's tax laws.

Understanding origin vs. destination sales tax collection

Alabama is a destination-based sales tax collection jurisdiction.

This means that sales tax is collected based on the location where the goods are delivered or where the buyer takes possession of them. Therefore, retailers must apply the sales tax rate applicable in the buyer's location.

For detailed information, you can refer to the Alabama Department of Revenue's Sales and Use Tax rules and guidelines.

Taxable products in Alabama

As of 2024, the general overview of product genres that are subject to sales tax in Alabama includes:

Tangible Personal Property: Most physical, tangible goods fall into this category. This includes items such as electronics, clothing, furniture, toys, and household goods.

Prepared Food and Beverages: Meals purchased at restaurants, cafes, or any other food service establishments are taxable. This includes dine-in, take-out, and delivery orders.

Utilities and Telecommunications: Charges for utilities like electricity and gas, as well as telecommunications services such as cell phone plans and internet services, are subject to sales tax.

Automobiles and Motor Vehicles: The purchase of new and used cars, motorcycles, recreational vehicles (RVs), boats, and other motorized vehicles are subject to a significant sales tax.

Leases and Rentals: Leasing or renting tangible personal property, such as cars, equipment, or storage units, incurs sales tax.

Digital Goods and Services: Digital products such as software, e-books, music downloads, and streaming services are generally taxable in Alabama.

General Services: Some services that involve the creation or repair of tangible personal property (e.g., appliance repair, car repair, tailoring) may be subject to sales tax.

Home Improvement and Building Materials: Sales tax is applicable on home improvement goods such as lumber, fixtures, appliances, and other building materials.

Alcoholic Beverages and Tobacco Products: These items have additional excise taxes but also fall under the general sales tax regulations.

Admissions and Entertainment: Tickets to events, theme parks, museums, and similar entertainment services typically incur sales tax.

Non-taxable products in Alabama

Prescription Drugs: Prescription medications are exempt from sales tax, providing financial relief for those who require these essential items.

Certain Medical Devices: Medical devices prescribed by a physician, such as insulin, are typically exempt from sales tax.

Groceries: While most general food purchases are subject to sales tax, certain categories such as baby formula may be exempt.

Governmental Purchases: Products and services purchased directly by the federal government, state, or local governments are usually not subject to sales tax.

Nonprofit Organizations: Purchases by certain nonprofit organizations may also be exempt from sales tax under specific conditions.

Is SaaS taxable in Alabama?

In Alabama, as of 2024, SaaS (Software as a Service) is generally considered taxable.

The state treats SaaS as a form of tangible personal property, thus subjecting it to sales tax. Businesses providing or purchasing SaaS should account for this when budgeting or preparing financial statements.

Are digital products taxable in Alabama?

In Alabama, digital products such as e-books, music downloads, and online streaming services are generally taxable.

The state treats these products similarly to tangible personal property, applying the sales tax accordingly. Businesses and consumers should account for this when purchasing or selling digital goods in Alabama in 2024.

Are services taxable in Alabama?

In Alabama, services generally are not subject to sales tax.

However, specific services, such as those related to repairs, maintenance, and certain accommodations, may be taxable.

Sales tax exemption certificates

In Alabama, sales tax exemption certificates allow qualified businesses and organizations to purchase goods and services without paying sales tax.

To obtain this certificate, the entity must demonstrate eligibility, such as certification as a nonprofit or an exempt governmental body. The certificate must be filled out completely and accurately, indicating the reasons for exemption and including necessary signatures.

Sellers must keep these certificates on file to substantiate exempt sales in case of audits. Misuse of exemption certificates, such as claiming tax-free status for non-qualifying purchases, can result in penalties including fines and revocation of the exemption privilege.

State tax holidays in Alabama for 2024

Sales tax holidays are periods when consumers can purchase certain items without paying sales tax. For 2024 in Alabama, sales tax holidays include:

• Severe Weather Preparedness: February 23-25, 2024
• Back-to-School: July 19-21, 2024

Filing sales tax returns in Alabama

Register for a Sales Tax License: Obtain a sales tax license from the Alabama Department of Revenue (ADOR). Registration can be completed online through the ADOR My Alabama Taxes (MAT) portal.

Collect Sales Tax: Collect sales tax from customers at the time of sale. Alabama's state sales tax rate is 4%, but local rates may also apply.

Keep Accurate Records: Maintain detailed records of all sales and tax collected. Good record-keeping is essential for accurate reporting and audits.

Determine Filing Frequency: Check your notification from ADOR to determine if you need to file monthly, quarterly, or annually. Filing frequency depends on your business's sales volume and tax liability.

File Sales Tax Return Online: Log in to the MAT portal to fill out and submit your sales tax return. The MAT portal is user-friendly and allows for electronic filing and payment.

Pay the Sales Tax: Remit the tax collected to the ADOR by the due date. Payments can be made directly through the MAT portal via electronic funds transfer (EFT).

Review and Confirm: Double-check all entries and confirm submission to ensure accuracy. Verifying information helps prevent errors and potential penalties.

Stay Informed of Due Dates: Be aware of your specific filing due dates to avoid late fees. Due dates can be found on the ADOR website or the MAT portal.

Sales tax filing frequency

In Alabama, the frequency of filing for sales taxes can vary based on the amount of sales tax collected by a business.

Generally, businesses are required to report and remit sales taxes to the Alabama Department of Revenue (ADOR) either on a monthly, quarterly, or annual basis:

Monthly Filing: Businesses that have a sales tax liability of $200 or more per month are required to file their returns on a monthly basis. These returns are due by the 20th day of the month following the month in which the tax was collected. For example, for taxes collected in January, the return would be due by February 20th.

Quarterly Filing: Businesses with a sales tax liability of less than $200 per month but more than $10 per month may be eligible to file their returns quarterly. The deadlines for quarterly returns are April 20th for the first quarter (January-March), July 20th for the second quarter (April-June), October 20th for the third quarter (July-September), and January 20th for the fourth quarter (October-December).

Annual Filing: For very small businesses with a sales tax liability of $10 or less per month, annual filing is an option. Annual returns are due by January 20th of the year following the year in which the taxes were collected.

Filing when no sales tax has been collected

In Alabama, registered businesses must collect and remit sales tax. If they fail to collect the tax, they must still remit the owed amount from their own funds.

Non-compliance may lead to penalties, including fines and interest on unpaid taxes. Persistent failure can result in audits, revocation of the sales tax permit, and even legal action.

Penalties for late filing and non-payment of sales taxes

In Alabama, sales tax filing and payment responsibilities are stringent, and the state expects businesses to comply with these regulations to avoid penalties.

Late Sales Tax Filing

Businesses in Alabama are required to file their sales tax returns by the 20th of each month for the preceding month's sales.

Late filing incurs penalties and interest charges. The penalty for late filing is typically 10% of the net tax due or a minimum of $50, whichever is greater.

Additionally, interest accrues on overdue taxes from the date the taxes were due until the payment is made, further increasing the financial burden on businesses.

Non-Payment of Sales Taxes

Non-payment of sales taxes in Alabama is a serious infraction. If taxes remain unpaid, the Alabama Department of Revenue (ADOR) may levy additional penalties, including a 10% non-payment penalty on the unpaid balance.

Persistent non-payment could result in more severe consequences, such as tax liens, seizure and sale of business assets, and even revocation of business licenses.

ADOR is aggressive in enforcing tax compliance, and businesses may also face legal action, which could lead to significant financial consequences and damage to their reputations.

Sales tax discounts and incentives

In Alabama, businesses in 2024 can benefit from several sales tax incentives and discounts designed to foster economic growth and support various industries. These incentives can significantly reduce operational costs for eligible businesses, making Alabama an attractive location for new and expanding enterprises:

Manufacturing Equipment Exemption: Alabama provides sales tax exemptions for machinery and equipment used in manufacturing. If your business involves manufacturing, you can purchase machinery and equipment without paying the state sales tax, which can result in significant savings.

Enterprise Zone Credit: Businesses located in designated enterprise zones may receive tax credits and exemptions to encourage investment and job creation in economically distressed areas. This can include sales tax exemptions on equipment purchases.

Data Processing Centers: For businesses operating data centers, Alabama offers certain sales tax abatements on the purchase of equipment used in such facilities, provided they meet specific investment and job creation thresholds.

Pollution Control Equipment: Equipment or systems designed for pollution control, such as those needed to comply with environmental regulations, are often exempt from state sales tax, easing the financial burden on businesses investing in sustainable practices.

Drug Manufacturer's Exemption: Similar to manufacturing equipment, businesses involved in pharmaceutical manufacturing may benefit from tax exemptions on the machinery, equipment, and materials used in their production processes.

Agricultural Exemptions: There are various sales tax exemptions available for the agricultural sector, such as those on seeds, fertilizers, and equipment used in farming.

2024 sales tax filing due dates for Alabama

Monthly: Due by the 20th of the following month

Quarterly: Due by the 20th after the quarter ends

Shipping and sales tax in Alabama

When to pay tax on shipping in Alabama

Generally speaking, if the shipping charges are part of the sale of taxable tangible personal property, then the shipping charges are also subject to sales tax.

This means that if you’re selling a product that is subject to sales tax, and you charge the customer for shipping, you must include that shipping charge in the taxable amount.

However, if the shipping charges are separately stated and the shipping occurs after the sale of the product, these might not be subject to sales tax. It's important to clearly itemize shipping charges to avoid confusion.