Alabama has several sales tax rates for various items instead of one rate across the state. It also has discretionary county tax rates that a business needs to add to the state sales tax rate. The general sales tax rate for Alabama is 4 percent. This guide does not fully describe all of Alabama’s tax laws and regulations regarding taxes. Businesses should contact a business attorney or visit the Alabama Department of Revenue to learn which rules and regulations are associated with their industries.
Types of taxes
Alabama charges business taxpayers several different rates for tax types, depending on what the business sells or leases.
Sales taxes
- Auto: 2 percent.
- Farm: 1.5 percent.
- General and amusement: 4 percent.
- Manufacturing machines: 1.5 percent.
- Vending for food products: sales tax: 3 percent.
- All other vending products: 4 percent.
Use tax
Alabama charges a use tax. At the state level, the use tax is the same as the sales tax. If a business purchases items, whether for resale or not, uses those products instead of selling them, and does not pay sales tax at the time of purchase, the business must pay use tax.
- Consumer’s and seller’s use tax auto: 2 percent.
- Consumer’s and seller’s use tax farm: 1.5 percent.
- Consumer’s and seller’s use tax general and amusement: 4 percent.
- Consumer’s and seller’s use tax manufacturing machines: 1.5 percent.
You can file the use tax return with the sales tax return.
Discretionary tax
Each county has its own sales and use taxes to add to the state’s tax rates. To learn what the business should charge, look up the tax rate by county or city. For example, a business could search by Henry County or Abbeville to find the tax rate for Abbeville.
Click the city’s name, then “View Details.” The list of all of the city’s taxes will open. The local sales tax structure follows the state’s structure. If you sell general goods, you would add the state’s 4 percent to the city’s 3 percent for a total of 7 percent on general goods.
Transient rental taxes
Alabama also charges transient rental taxes. The state is divided into two areas: the Mountain Lakes Area and the rest of the state. A business in the Mountain Lakes Area charges 5 percent on lodgings, while the rest of the state charges 4 percent.
The Mountain Lakes Area consists of the following counties:
- Blount
- Cherokee
- Colbert
- Cullman
- DeKalb
- Etowah
- Franklin
- Jackson
- Lauderdale
- Lawrence
- Limestone
- Madison
- Marion
- Marshall
- Morgan
- Winston
Transient tax rates are due from motels, hotels, bed and breakfasts, and other types of lodging that offer nightly rooms.
Out-of-state retailers
Businesses that buy products and services from out of state must also pay sales tax unless it purchases tangible personal property for resale. If a business purchases items for resale and does not pay taxes but then uses the items for the business, it must pay the use tax on those items.
In most cases, out-of-state retailers and marketplace sellers collect tax as a convenience to Alabama residents. If a business does not collect sales and use tax, the purchaser must pay use tax.
Rental tax rates
Alabama charges a separate rate for rentals. It taxes auto rentals at 1.5 percent, linens and garments at 2 percent, and anything else a business or individual might rent at 4 percent.
Telecommunications
The state also charges sales and use tax at 6 percent on mobile telecommunications services. For prepaid wireless charges, the tax is $1.86 per retail transaction.
Utilities
Alabama has several taxes for utilities. Businesses that manufacture and sell hydroelectric power must pay 2/5 mill on each kilowatt-hour.
Public utilities, with the exception of railroads express companies, hydroelectric companies, and telephone and telegraph companies must pay 2.2 percent of each dollar from their gross receipts.
Electric companies must pay:
- 4 percent of gross sales or receipts if the monthly gross sales are $40,000 or less.
- $1,600 plus 3 percent of the excess over $40,000.
- $2,200 plus 2 percent of the excess over $60,000.
Telephone and telegraph
The taxes for telephone and telegraph gross receipts are also structured. Telephone and telegraph companies must pay:
- 6 percent of all gross sales or gross receipts.
- 7 percent of all gross receipts for bills that are less than $60,000.00.
- $4,020.00 plus 3.7 percent of all gross receipts for bills that are over $60,000.
Registering for Alabama's taxes
Registering to pay sales and use taxes in Alabama is a half-hour process online. Before you start, make sure you have IDs, addresses, the business start date, contact information, and bonds ready before you start. If a business sells tobacco, beer, or wine, it needs a $25,000 surety bond.
Before registering for an Alabama sales tax account, you might also need to complete these tax forms or apply online at the respective agencies:
- FEIN.
- SSN.
- The NAICS code for the business.
- If the business is an LLC or LLP, IRS Form 8832, Entity Classification Election
- The Alabama Department of Revenue Entity Registration information.
The Department of Revenue usually takes three to five business days to process the business’s application and tax information.
Alabama tax exemptions
Alabama has several exemptions to the state tax liability:
- If a business purchases equipment or materials to reduce, eliminate or control water or air pollution, those items are exempt from sales and use taxes.
- Products used by a manufacturer for quality control testing or donations to charitable entities are exempt from sales and use taxes.
- Manufacturers and compounders who use tangible personal property as an ingredient or a component in their compounded or manufactured products do not have to pay sales and use tax on those products.
- If natural gas or electricity is used by a company in a compounding process or electrolytic or electrothermal manufacturing, those products are exempt.
Additionally, businesses can apply for a tax exemption certificate (resale certificate) for items they plan to resell.
Calculating Alabama's sales and use tax rates
A business must add the state and county or city tax rates to each item it sells to figure the tax due. The tax due is based on the business location. Add the local jurisdiction taxes to the state’s overall rate for your business. For example, if you sell general goods, the state sales tax rate is 4 percent. If the business is located in Blount County, the local rate is 3 percent, but if the business is located in unabated Blount County, the local rate is 1.833 percent.
Thus, a business in unabated Blount County would pay 5.833 percent on general goods, while a business in Blount County would pay 7 percent on general goods.
Filing and paying Alabama's sales and use taxes
Once a business creates an account on My Alabama Taxes (MAT), it can file tax reports and pay its sales and use tax obligations for sales of tangible personal property and other tax revenue online. Electronic information must be submitted before 4:00 p.m. on or before the due date to be timely. Due dates are as follows:
If you pay on time, you could receive a discount of 5 percent on the first $100 and 2 percent on $101 and over of taxes due, up to $400 in discounts.
- Tax returns and payments are due on the 20th day of the month following the collection month. For example, if a business collects receipts for January 2022, the tax is due February 20, 2022.
- Businesses that pay quarterly must submit reports and remit taxes due on or before the 20th day of the month after the quarter ends. For example, Quarter 1 is January through March. Taxes and reports are due April 20.
- Businesses that pay semi-annually must remit reports and payments by the 20th day of the month after the semi-period. For example, if the business collects taxes for January through June, the tax is due July 20.
- Businesses that pay yearly must submit reports and remit payment before January 20 of the following year. For example, a business collects taxes from January 2021 through December 2021. The taxes and reports are due on January 20, 2022.
FAQs
The sales and use tax for general goods is 4 percent for 2022.
Yes. The retail sales tax rate is 4 percent at the state level. Businesses must add county and city discretionary taxes to the state’s sales tax rate.
If you purchase items for resale, you do not pay taxes until you sell the item. If you purchase items to use and do not pay sales tax at the time of the purchase, you must pay use tax on the items.
Yes. Register a business using My Alabama Taxes (MAT).
Yes. Businesses can receive up to $2,500 for each new permanent employee in certain zones. The Alabama Department of Economic and Community Affairs updates the economic zone maps frequently.
Eligible sellers who sell tangible personal property or services to Alabama residents and businesses can pay an 8 percent flat-rate use tax if the eligible seller is out-of-state and does not have a physical presence in Alabama.
