Alabama Sales Tax Rates

Total Range for 2024

4% – 11%

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Why do you need to collect sales tax in Alabama?

If you’re selling goods and services in Alabama then sales tax might apply! To determine your obligation, we need to understand “nexus,” which ties businesses to states for tax purposes.

Two types of nexus exist:

  • Physical Nexus: Having a physical presence, like an office, warehouse, or employees in Alabama, triggers this type. If you do, you likely need to collect sales tax.
  • Economic Nexus: This kicks in when your sales within Alabama exceed a certain economic threshold. Even without a physical presence, surpassing this threshold requires collecting sales tax.

Is what you’re selling taxable in Alabama?

Now that you understand your Alabama sales tax obligations, the next step is to determine if the specific products or services you offer are subject to Alabama sales tax.

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How to register for sales tax in Alabama

Alabama handles sales tax registration online through their My Alabama Taxes (MAT) system. Here’s how to register:

  1. Visit the Alabama Department of Revenue’s Business Tax Online Registration System: https://www.revenue.alabama.gov/sales-use/business-tax-online-registration-system/
  2. You’ll use the MAT system to apply for a tax account number. This number is necessary for filing and paying sales tax.
  3. The registration process is free and takes 3-5 business days to complete.

Our top tip? Make sure you have your personal identification information (Social Security number, address) and business identification information (Employer Identification Number (EIN), address, business entity type) readily available.

How to collect sales tax in Alabama

Alabama uses a destination-based sales tax system, meaning you need to charge the sales tax rate applicable to the buyer’s location, not your own.

Here’s a breakdown of the collection process:

  1. Determine Buyer Location: This is crucial for calculating the correct tax rate. You can obtain the buyer’s address during checkout or ask for it if unsure.
  2. Identify Applicable Tax Rate: Alabama has a base state sales tax rate. However, many localities (cities and counties) add their own local sales tax rates on top of the state rate.
  3. Calculate and Collect Sales Tax: Multiply the sales price of the good or service by the combined state and local sales tax rate for the buyer’s location. This will give you the amount of sales tax to collect from the buyer.

Example:

  • You sell a product for $100.
  • The buyer’s location has a combined state and local sales tax rate of 8%.
  • Sales tax amount = $100 (product price) x 8% (tax rate) = $8
  • You would collect $8 in sales tax from the buyer and remit it to the Alabama Department of Revenue.

FAQs

Do you have a physical nexus in Alabama?

This determines if you need to collect sales tax based on having a physical presence in the state. Alabama considers you to have a physical nexus if you have any of the following:

  • An office or retail store in Alabama.
  • A warehouse or inventory stored in Alabama (this includes inventory stored by fulfillment services like Amazon FBA).
  • The regular presence of traveling salespeople or other representatives in Alabama.
Do you have an economic nexus in Alabama?

Economic nexus applies if your sales exceed a certain threshold within the state, regardless of physical presence.  Alabama requires sellers who make more than $250,000 in sales annually in the state to register and collect sales tax.

What is use tax in Alabama?

Use tax applies to purchases made out-of-state but used in Alabama.  If you don’t collect sales tax at the time of purchase, you’re responsible for paying use tax to the state.

Do you need a seller/reseller permit?

Yes, if you have a physical nexus or economic nexus in Alabama, you need a seller’s permit to collect and remit sales tax.

For those who don’t know a seller/reseller permit, also known as a sales tax permit, is an authorization issued by the Alabama Department of Revenue that allows you to collect sales tax from customers on behalf of the state.

How to get a sales tax permit/license in Alabama?

Here’s a step-by-step guide:

  1. Visit the Alabama Department of Revenue’s Business Tax Online Registration System
    • This webpage allows you to register for a tax account number, which is necessary for filing and paying sales tax.
  2. Complete the Online Registration
    • The registration process is free and typically takes 3-5 business days to complete. You’ll need to have the following information readily available:
      1. Personal Identification: Social Security number and address.
      2. Business Identification: Employer Identification Number (EIN), address, and business entity type (sole proprietorship, LLC, etc.).
When are Alabama’s Returns Due?

The due date for filing Alabama sales tax returns depends on the total amount of sales tax you collected during the preceding calendar year. Here’s a breakdown:

  • Monthly Filing:
    • If your sales tax liability for the previous calendar year averaged less than $2,400 per month ($28,800 annually), you are required to file and remit sales tax monthly on or before the 20th day of the month following the reporting period.
  • Quarterly Filing:
    • Businesses with a sales tax liability of less than $2,400 per month on average for the preceding year can elect to file quarterly. You must notify the Alabama Department of Revenue in writing by February 20th to choose this option.
    • Quarterly filings are due on or before the 20th day of April, July, October, and January for the preceding quarter.
  • Annual Filing:
    • Businesses with an annual sales tax liability of less than $10 for the preceding year can file annually. The return and remittance are due on January 20th for the previous year.
Filing sales tax in Alabama

There are three steps to filing taxes in Alabama:

  1. Know Your Deadline:
    • Monthly (most common), quarterly, or annually? Check the previous year’s sales tax to see which applies to you: link to due date calendar: 
  2. Gather Details:
    • Sales tax permit number.
    • Sales records for the period (total sales, tax collected by rate).
  3. File Electronically (Mandatory):
    • Register for a My Alabama Taxes (MAT) account if you haven’t already.
    • Use MAT to file your return with sales and tax info.
  4. Pay Electronically (Mandatory):
    • Make your sales tax payment through MAT (ACH debit or credit card with potential fees).
    • Payments exceeding $750 require Electronic Funds Transfer (EFT) by 4 pm CT on the due date.
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Is anyone exempt from sales tax in Alabama?

Yes, there are some exemptions from sales tax in Alabama. Here are some examples:

  • Non-prepared groceries: This includes most food items intended for home preparation, but excludes prepared food and hot beverages.
  • Prescription drugs and medical devices: Essential medical items used to diagnose or treat a medical condition are exempt.

Certain clothing and footwear: Generally, clothing and footwear priced individually under $100 are exempt. However, there are exceptions for certain items like sports equipment and accessories.

Contact Yonda Tax Today

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