Alabama Sales Tax Handbook

RATE OF SALES TAX:

4.00%

LOCAL & COUNTY MAXIMUM RATES:

7.50%

What Are the Taxable Goods and Services?

The first step in sales tax compliance is determining if the items or services your firm offers are taxable in Alabama.

Traditional Products and Services

Physical property such as furniture, household appliances, and automobiles are examples of goods subject to sales tax in Alabama.

Prescription drugs and fuel are both tax-free.

In Alabama, several services are subject to sales tax. For a comprehensive list of taxed services, see

In addition, the Alabama Department of Revenue has issued a handbook on sales tax exemptions and exclusions.

Digital Products and Services

A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.

Businesses in Alabama are required to collect sales tax on the sale of digital products or services.

How to Register for Sales Tax in Alabama

If you have concluded that you must charge sales tax on part or all of the products and services that your company sells, the next step is to apply for a seller’s licence.

This enables your company to collect sales tax on behalf of the municipal and state governments.

You will need the following information to register:

Personal identifying information (SSN, address, etc.)
Identification information for a business (EIN, address, etc.)
Type of business entity
Date began conducting business in Alabama.

Sales Tax Collection

After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.

When computing sales tax, consider the following types of transactions:

Store Sales Shipping Within-State Sales Outside-State Sales

Retail Sales

For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location. Here’s an illustration of how this situation may look:

In Huntsville, Alabama, Mary owns and operates a bookshop. Because books are taxable in Alabama, Mary charges her clients a 9% flat-rate sales tax on all transactions. This includes Alabama’s 4% state sales tax, 0.5% Madison County sales tax, and 4.5% Huntsville municipal district tax.

Sales inside the state

Alabama has a sales tax regime known as a destination-based sales tax. This implies that long-distance purchases inside Alabama are taxed based on the buyer’s address. This regulation applies to sales taxes levied by the state, county, and city.

Consider the following scenario:

Steve operates his own eBay electronics company from his home in Dothan, Alabama. A buyer from Gadsden, Alabama discovers Steve’s eBay website and buys a $350 set of headphones. Steve uses the 4% state tax rate for Alabama, the 4% city sales tax for Gadsden, Alabama, and the 1% local county tax rate for computing the sales tax for this transaction. The entire cost is $381.50 ($31.50 sales tax) at a total sales tax rate of 9%.

Out-of-State Purchases

Alabama firms must only pay sales tax on out-of-state purchases if they have a presence in other states.

Nexus indicates that the company has a physical presence in another state.

Common nexus types include:

A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.

Submit Your Sales Tax Return

You’re ready to submit your sales tax return now that you’ve obtained your Alabama seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.

How to File a Claim

Businesses in Alabama are required to file sales tax forms and make sales tax payments online.

How Frequently Should You File?

The frequency with which you must submit is determined by the total amount of sales tax collected by your firm.

Annual filing: If your company earned $120 or less in the preceding calendar year, you should submit returns on an annual basis.
Quarterly filing: If your company earned less than $2400 in the preceding calendar year, you should submit returns on a quarterly basis.
Monthly filing: If your company does not vote or does not qualify for any of the latter alternatives, it will submit returns on a monthly basis by default.

Deadlines for Filing

The deadline for all sales tax returns is the 20th of the month, unless it is a weekend or federal holiday, in which case the deadline is postponed to the following working day. The following are the filing deadlines for this year:

Penalties for Filing Late

Late filing in Alabama results with a $50 punishment. Returns that are not submitted on time are subject to a “failure to promptly file” penalty of 10% of the tax. Interest is also payable at the same rate set by the Secretary of the Treasury under the authority of 26 USC 6621.