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Alabama Sales Tax Guide

By Cristina Garza

Alabama, the Heart of Dixie, is the 22nd state in the union and undeniably a place of many great American inventions and innovations. Alabama was home to the world's first electric trolley and is also where the first rocket used to send men to the moon was built. Perhaps this is due to Alabama being the only state with all the natural resources required for making iron and steel. In addition to its history of agriculture and industry, Alabama is also home to many thriving small businesses. If you’re one of the many small business owners keeping Alabama prospering today, you’re going to want to be sure your business complies with Alabama's sales tax laws. Don't fret! We have assembled this all-in-one guide for sales tax so that you can meet the sales tax compliance requirements for a small business in Alabama.

After reading this guide, you will have learned:

  • How to be prepared for your call with the Alabama Department of Revenue.
  • How to contact the Alabama Department of Revenue.
  • When to charge sales tax in Alabama.
  • What goods, products, and services are taxable in Alabama.
  • When you establish a sales tax nexus with the state of Alabama, and the nuances of various thresholds.
  • How to register for a sales tax license in Alabama.
  • How to collect sales tax in Alabama.
  • How to file and pay sales tax in Alabama.

If, after reading, you still have any questions to help you determine your tax sales obligations in Alabama and how to fulfill them, we are here for your small business bookkeeping needs! 

 

 


Alabama Sales Tax Contacts

Alabama Sales Tax Contacts

✅  Do you need to get in touch with the Alabama Department of Revenue?

✅  Are you uncertain about whether to visit, call them, or contact them through their website?  

✅ Do you wonder what information you should have ready before you contact them?

 

If you answered “Yes” to any of these questions, please read onward, as we have just the information you need! :)

The Alabama Department of Revenue is reachable by phone at 334-242-1490. 

You can also visit their one of their taxpayer service centers or ask them a question via their website. If you are hoping for the fastest response, we always suggest that you call rather than visit in person. 

When you do call the Alabama Department of Revenue, you will want to have some information on hand. It will save time to have the following information easily accessible before you call: 

  • Taxpayer Name
  • EIN
  • Sales & Use Tax ID Number

If you plan on having a third party contact them on your behalf, you’ll want to be sure to have completed a power of attorney form (Form 2428, PDF). If you don’t have a completed form they won’t be able to assist someone else on your behalf.

If you have any more questions, please feel free to contact us so we can assist you with your sales tax needs.

 

 


Alabama Sales Tax Registration

Alabama Sales Tax Registration

 

Are you a new business selling tangible property in Alabama? If yes, you are going to want to register your business with the Alabama Department of Revenue so that you can pay your sales tax on time. 

You need not fret as this is a relatively simple process and one for which you’re about to be fully prepared. We are going to outline the steps below so you are totally ready to register for your sales tax license.

 

Here we go! Remember...

Preparation is key. 

Let’s get started!

 

 

How do I register to collect sales tax in Alabama?

You can apply or register for an Alabama sales tax permit by visiting the My Alabama Taxes site and following the instructions provided to register a new business entity.

Alabama does not offer an old school paper based form you can print and mail in. 

 

 

What information do I need to register for an Alabama sales tax permit?

Great question!

Before you sign up for Alabama sales tax permit you’ll want the following information on hand:

  • Business name
  • Business entity type 
  • Description of business activities
  • Date business activities began or will begin
  • Business address and mailing address
  • Business contact information
  • Associated business entities 
  • NAICS code that best matches the business
  • Federal Employer Identification Number (FEIN)
  • List of business officers, partners, managing members, and/or trustees

Don’t forget! Preparation is key. When you have all this information ready, you can go online and register for your permit at the My Alabama Taxes site

 

 

How much does it cost to register for an Alabama sales tax permit?

Zip! Alabama doesn’t charge anything at all to register a new business sales tax permit :).

 

 

Do I need a Federal Tax ID Number or EIN to register for an Alabama sales tax permit?

Yes indeedy! You will most assuredly need one, but if you don’t already have one and need to get a new EIN, it’s a painless process. You can register for a Federal EIN right here :). 

 

 

Which agencies in Alabama do I need to additionally register with?

You may need to check with some of the following agencies or resources: 

You’ll want to give this some thought and do a little research or investigating; since every business is unique, and there are such different rules, regulations, and laws that may apply. 

We suggest contacting the Alabama Department of Revenue to verify which additional government agencies you may be required to register with. 

 

*****

 

Huzzah!!!

You are now prepared to register for your Alabama sales tax permit in Alabama. 

Let’s summarize what we have covered:  

  • Have all the required information easily accessible before registering online.
  • Acquire a tax ID or EIN before registering for an Alabama sales tax permit.
  • Register online at the My Alabama Taxes site.
  • Look into what other agencies you may have to additionally register with.

Registering for your Alabama sales tax permit will be stress free as long as you are prepared. We recommend organizing all the essential information in a folder, preferably using a system like Box.com or Dropbox (something we’re happy to handle for our customers). 

 


Alabama Sales Tax FAQ

Alabama Sales Tax FAQ 

By now, you may have already contacted the Alabama Department of Revenue and applied for an Alabama sales tax permit. 

Once you have a license to collect and remit sales taxes in Alabama, you will probably be asking yourself two questions: 

  • When do I charge a sales tax in Alabama?
  • What goods and services are subject to sales taxes in Alabama? 

We are going to go over some common questions that our clients have asked. We believe these questions will help you appreciate the nuances of taxable goods so you can be confident in fulfilling your tax obligations. 

Let’s start with the first question…

 

 

What goods and services are considered taxable in Alabama?

The following items are all taxable in the state of Alabama: 

  • Sales of tangible goods at retail.
  • Repairs or alterations of tangible personal property.
  • Property rentals, leases, or licenses [e.g. commercial, mini-warehouse]
  • Selling service warranty contracts.
  • Short-term rentals for living accommodations (e.g. motel/hotel, beach houses, condos, timeshares, vacation homes, or RV homes).
  • Rental/lease of personal goods (e.g.: machinery, vehicles, equipment, or other property).
  • Charges for admission to any place of amusement, sport, or recreation.
  • Manufacturing or producing goods for retail sales.
  • Operating vending machines or amusement rides.
  • Services are mostly exempted
 
The bottom line is …

Your business must pay taxes on sales of any non-exempt goods, and some taxable services.

 

*****

 

 

Let’s now review some of our clients’ frequently asked questions:

  • Is Alabama an Origin or Destination sales tax State?
  • What creates a sales tax nexus in Alabama?
  • What is the economic threshold in Alabama?
  • Does Amazon have fulfillment centers in Alabama?
  • Does Alabama have a Click-Through Nexus?

To best understand your tax obligations, new businesses need to consider how they are doing business and the type of relationships they have with buyers and any third parties to their transactions. 

Let’s discuss some questions that will help you understand the nature of your small business and the subsequent tax implications.   

 

 

Is Alabama an origin or destination-based sales tax state?

Alabama is a Destination-Based sales tax state. This just means you’ll need to have a Point-of-Sales system configured to track tax based off your buyer’s location vs tracking against the the business location (which would be ‘origin-based’).

 

 

 Protip: Charge sales tax based on your customer’s location rather than your location

 

 

What creates a tax nexus with the state of Alabama?  

Having nexus, also known as "sufficient business presence,” with Alabama means your business has established a taxing connection with a state. When this happens, you are required to collect and remit sales tax in Alabama because you created a sales tax Nexus.

Even if your business maintains its main headquarters in another state, you may still have to charge and pay sales tax to the Alabama Department of Revenue even if you never step foot in Alabama.   

So, how do you create Sales Tax Nexus in Alabama?

 

A business establishes a nexus in Alabama by:

  • having a business location in Alabama;
  • having property stored in Alabama;
  • employing any person in Alabama;
  • contracting with a salesperson or other agent in Alabama;
  • leasing equipment used in Alabama;
  • performing services in Alabama;
  • licensing the use of intangible property in Alabama, or transporting property in Alabama using the taxpayer’s vehicles.

Let’s talk a bit more specifically about where your goods are stored, such as in the instance of an Amazon warehouse. 

 

 

Does Amazon have fulfillment centers in Alabama?

No, Alabama has no Amazon distribution centers at this time.

This information is relevant for our customers who sell products on Amazon or are recognized as Amazon FBA (Fulfillment by Amazon) sellers. When Amazon stores products in one of its fulfillment centers in any state including, it triggers a sales tax requirement. 

 

 

Does Alabama have economic nexus?

Yes, Alabama does now have an economic nexus law, and it’s a doozy. As of January 1st, 2019, remote sellers are liable to either pay what Alabama calls SSUT (Simplified Sellers Use Tax) or report citizen tax liability (hence use tax). This means that even businesses without a physical presence or traditional nexus can be required to register for, collect, and pay sales taxes or register and report.

The threshold for registering is having a cumulative gross revenue of over $250,000 in a year to Alabama purchasers, and the rate of 8% is higher than most in-state taxing.

For more information see the Alabama DOT’s SSUT page here.

 

 

Does Alabama have click-through nexus?

Nope! Unusually for a state with such a strong economic nexus policy, there isn’t a click-through nexus requirement in Alabama at this time. This impacts “affiliate marketers” or those who make revenue by referring/directing sales to third parties.

 

 

Is Alabama a streamlined sales tax state?

Nope, Alabama has unfortunately not yet joined into this potentially time-saving multi-state streamlined tax program.

 

More effectively manage your tax needs by keeping this guide handy. 

You and your business can be better equipped to avoid situations like paying fines, paying back taxes that you did know you had to pay in the first place, or facing an audit by the tax authorities in Alabama.

 

 


Collecting Sales Tax in Alabama

Collecting Sales Tax in Alabama

By now you know if you are a business that has established a nexus with Alabama. So you have an understanding about whether, or when, you are required to collect sales tax. Knowing this is just half the battle! Now, we are going to help you with the next half of the battle: how to navigate the process of collecting taxes.

Let’s review some common questions our clients have asked regarding their Alabama Sales Tax obligations. 

  • How do I collect Alabama Sales Tax?
  • Who is eligible for Alabama Sales Tax exemptions?
  • What should I do if my customer is exempt from sales tax in Alabama?
  • What happens if I lose an Alabama tax exemption certificate? 

After reading this, you will be better equipped to determine when --and when not-- to collect sales tax in Alabama.

 

 

How do I collect Alabama sales tax?

Because Alabama is a destination-based sales tax state, your business should charge sales tax at the time of the transaction based on the business location rather than that of the buyer. 

 

 

What are the current Alabama sales tax rates?   

Alabama is a state with many different tax rates based on the type of transaction. The state-wide sales tax rate for general sales is 4% at the time of this article’s writing, with local surtaxes potentially bringing that amount up to 11%. Since sales tax rates may change, we advise you to check out the Alabama Department of Revenue Tax Rate page which has the current rate. Any change will be reflected on that page.

 

It always helps to be accurate and up to date with this type of information! :) 

 

 

What is exempt from Alabama sales tax?

What is exempt from sales tax in Alabama?

Here is a sample list of exemptions: 

  • Purchases for resale
  • Gasoline and Motor Oil
  • Medical supplies
  • Groceries 
  • Agricultural supplies [seeds for planting, feed for livestock]

 

 

Who are eligible for Alabama sales tax exemptions?

At this point, you should know what products are exempt from sales tax in Alabama. You also want to know who may be exempt. 

Under Alabama law, the type of buyer or the way the goods will be used can qualify can buyer for a sales tax exemption. A good example of this is a merchant purchasing goods for resale, aka a wholesaler.

Other common examples of an exempt buyer may include:

  • Government agencies
  • Non-profit organizations
  • Religious groups
  • Out-of-state buyers (should their business not have nexus in their home state).

Note that a non-profit status doesn’t instantly confer tax exemption. 

 

 

What should I do if my customer is exempt from sales tax in Alabama?

Purchasers who are tax exempt must have completed resale certificate (PDF) and must present their completed exemption certificate at the time of purchase. It is then incumbent upon the seller to hold on to this exemption certificate. Failure to do so may leave you unable to justify tax exempt sales. In order to verify the authenticity of an exemption certificate, you can visit the My Alabama Taxes site and click “Verify an Exemption Certificate” on the right (due to the site format, we’re unable to link more directly than that).

Remember, you always want to collect and file a copy of the exempt certificate. Such certificates must be produced upon request in the event of an audit to justify tax-exempt sales.

 

 

What happens if I lose an Alabama sales tax exemption certificate?

This issue is definitely one that is best to be avoided! Imagine finding out you’ll be audited and discovering you cannot produce an exemption certificate for a buyer! That nightmare scenario would mean you could be held liable to pay all taxes on behalf of the buyer. This is a bad scene and can be avoided by taking proper care with your paperwork… which happens to be one of our specialties! :) 

 

 

Does Alabama have a sales tax holiday?

Yes, Alabama has not one but TWO yearly breaks from the requirement to pay sales tax:

  • Back to School Sales Tax Holiday - Starting 12:01AM On the third Friday in July, ending the following Sunday. Certain items (PDF) in participating areas are exempt from the sales tax.
  • Severe Weather Preparedness - Starting 12:01 on Friday of the last full weekend in February and ending the following Sunday. Certain items (PDF) in participating areas are exempt from sales tax.

 

***** 

We have now covered who you need to collect sales taxes from, how to determine whether goods for sale are deemed taxable, what goods and services fall under tax exemptions, who is eligible for tax exemption certificates, and, finally, the process of collecting sales tax in Alabama state. 

Now that we’re this far down the rabbit hole there’s only one thing we need to learn about next… how to pay the piper! 

 

 


Filing and Paying Sales Tax in Alabama

Filing and Paying Sales Tax in Alabama

It is time to talk about filing and paying your sales taxes in Alabama. In this section, We are going to cover the following frequently asked questions from our clients:

  • When is Alabama Sales Tax due?
  • What are the Alabama Sales Tax thresholds?
  • What if an Alabama Sales Tax filing date falls on a weekend or holiday?
  • How do I file an Alabama Sales Tax Return?
  • How do I correct an Alabama Sales Tax return?
  • What happens if I don’t collect sales tax?
  • What happens if I file or pay my sales tax return late?
  • Do I need to file a return if I don’t collect any sales tax in Alabama?
  • If I close my business, do I need to file a final sales tax return?
  • Does the Alabama Department of Revenue offer a discount for filing on time?

By the time you finish reading this, you will feel confident enough to file and pay your Alabama Sales Tax.

 

 

When is Alabama sales tax due?

Alabama sales tax payments are due based on the filing interval. Filing intervals are based on the company’s tax liability [detailed ahead, be patient! :p] 

The state of Alabama requires payment by no later than the 20th day of the month following the reporting period

 

 

What are the Alabama sales tax filing interval thresholds?

The thresholds for filing intervals are based on the expected or actual tax liability owed:

 

Average Tax Liability Owed Monthly*

Filing interval

From $0 to $.84

Annual

From $.85 to $200

Quarterly

More than $200

Monthly

 

 

*anticipated if new business, actual if existing company

 

Not sure how to determine your tax filing frequency?

You can review your eCommerce or Point-of-Sale Software to see the volume of sales you have generated. 

Don't worry though! The state will let you know when your due dates change. :) 

Keep an eye out for notices in your mail from the State of Alabama so that you don't miss any shift in deadlines.

 

 

What if an Alabama Sales Tax filing date falls on a weekend or holiday?

The deadline is moved to the next business day, typically the Monday following the weekend or the day after the holiday. Where possible, we always suggest filing well before the holiday, of course ;). 

 

 

How do I file an Alabama sales tax return?

Paper: Build a time machine and travel to an era when paper was still acceptable :) (Alabama doesn’t have a paper filing option). 

Electronic: File online via My Alabama Taxes site and submit payment via EFT.

  

 

How do I correct an Alabama sales tax return?

Paper: Request a form by calling (334) 242-1490 and mark Amended on the form before filing.

Electronic: Amend the return within the My Alabama Taxes site.

 

 

What happens if I don’t collect sales tax?

If you were required to collect sales taxes and failed to do so for whatever reason, that’s a big no-no! Ultimately the business will be held liable for the due tax. Always be sure to collect sales tax at the point of sale. Attempting to collect after the fact will be time consuming and most likely unsuccessful. 

 

 

Protip: You are still responsible for remitting sales taxes even if you failed to collect them. 

 

 

What happens if I file or pay my sales tax return late?

Alabama's Department of Taxation charges a penalty for late filing of 10% or $50, whichever is greater. They also charge a Late Payment penalty of 10%.

 

 

Do I need to file a return if I don’t collect any sales tax in Alabama?

Yep! Alabama requires businesses file a “Zero-Tax” return even when they have no sales during a taxing period.

 

 

If I close my business, do I need to file a final sales tax return?

Absolutely, Alabama requires businesses to file a “Final sales tax” return when closing their doors.

 

 

Does the Alabama Department of Revenue offer a discount for filing on time?

Yes, they do! Alabama offers 5% discount on the first $100 of tax due and 2% above that, with a maximum monthly discount not to exceed $400. No reason to not capitalize on this potential saving, so be sure to file early!

 

*****

 

Now that we have covered all our bases for filing and paying sales taxes in the state of Alabama, you should feel more at ease about the process.

 

Some things to remember:

  • Due dates are important. If anything, file and pay your taxes early.
  • There are three payment plans for filing and paying your sales taxes depending on how much you collect in sales tax on average in a month.
  • You can file and pay your taxes electronically or by mail
  • If you need to amend a return, you may do so electronically or by paper.
  • If you don’t collect sales tax and you were supposed to, you (not the buyer) is liable to pay the sales tax to the state of Alabama.
  • You will have to pay late fees if you fail to file your tax return on time and/or if you fail to make your tax payment on time.
  • Even if you collect no sales tax, you still need to file a return.
  • You need to file a “Final sales tax report” when you close your business.

 

Now, you are ready to file and pay your sales tax in Alabama. If you have any more questions, feel free to contact us.

 

 

Click here if you think sales tax is boring. Book a meeting.  

 


 

Please note: This blog is for informational purposes only and the information is accurate as of 10/7/2019. If you want legal advice on sales tax law for your business, please contact a Sales Tax professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.