What is sales tax in Alabama?
Alabama charges both a state sales tax and local sales tax. The sales tax rate in Alabama varies depending on what locality a purchase is being made in.
The combined Alabama sales tax rate is made up of two different rates:
- A base Alabama state sales tax of 4%
- Local sales tax rates that range between 0.10% and 7.5%
However, there are reduced Alabama state sales tax rates or exemptions on some types of purchases (i.e. cars, farm machinery, etc). The state also has a special sales tax rate for online sellers, known as the Simplified Sellers Use Tax.
In Alabama, county tax authorities and municipalities impose their own sales tax rates. While some localities are state-administered which allows you to file all your sales tax in one return, other taxing authorities are not.
What is Alabama’s online sales tax (also known as the Simplified Sellers Use Tax)?
Alabama’s online sales tax is a program the state calls the Simplified Sellers Use Tax (SSUT). It allows eligible sellers to charge a total sales tax rate of 8% on all purchases made by Alabama residents. This means that ecommerce business owners don’t have to know the sales tax rate for every taxing authority in Alabama. Instead, they just charge and remit the same flat rate no matter where in the state the purchase is being made from.
To be eligible, a seller must sell tangible personal property or services to customers in the state of Alabama from a location outside the state and not have a physical presence in the state.
Eligible remote sellers and marketplace facilitators must apply and be accepted into the program prior to collecting and remitting the 8% tax. An eligible seller is one that does not have a physical presence in Alabama.
See the Simplified Sellers Use Tax (SSUT) page for more information on Alabama’s online sales tax.
What is the Alabama food tax?
The food tax in Alabama is a special state sales tax rate on food and grocery purchases of just 3%. In order to be eligible for this lower rate, the food or beverage must also be eligible for the Supplemental Nutrition Assistance Program (SNAP).
Examples of food that qualify for the lower Alabama food tax rate:
- Meat, poultry, and fish
- Dairy products
- Breads and cereals
- Other foods (ex. Snack foods and non-alcoholic beverages)
- Seeds and plants which can produce food for the household
Examples of food that doesn’t qualify for the lower Alabama food tax rate:
- Prepared food sold hot
- Live animals
- Alcoholic beverages
- Pet food
- Vitamins, medicine, supplements
- Cleaning products
Alabama also has a lower state sales tax rate of 3% on food in coin-operated vending machines. Localities still charge their normal tax rates on top of the Alabama food tax, meaning the sales tax savings is just 1%.
See the SNAP website for more information on what foods qualify for the 3% food tax in Alabama.
What is Alabama’s restaurant sales tax rate?
Alabama doesn’t currently have a lower or higher sales tax rate on restaurant food. Restaurant purchases in Alabama are taxed at the normal state sales tax rate of 4%. A local sales tax rate ranging from 0.10% to 7.5% is added on top of this.
What is Alabama’s clothing sales tax?
Alabama doesn’t currently have a lower or higher sales tax rate on clothing. Clothing purchased in Alabama is taxed at Alabama’s state sales tax rate of 4%. A local sales tax rate of 0.1% to 7.5% is then added to this.
What’s a taxable item according to AL sales tax laws?
In Alabama, most types of tangible goods are taxable. However, the state has a limited number of sales tax exemptions and some different sales tax types with lower rates.
Here are a few examples of tangible goods that you must charge AL sales tax on:
- Tangible personal property, unless specifically exempted
- Prepared food and restaurant food
- Digital goods like software and media
- Certain services
- Automobiles (at a reduced 2% rate)
- Food in vending machines (at a reduced 3% rate)
- Groceries (at a reduced 3% rate)
See the Alabama State Sales Tax page for more information.
What are non-taxable items according to AL sales tax rules?
Alabama has a limited number of sales tax exemptions – but some of the state’s exemptions are different from other states.
Here are a few examples of non-taxable items that you don’t need to charge AL sales tax on:
- Prescription drugs
- Motor oil
- Certain agricultural items
- Labor to repair or install property
- Sales paid for with food stamps
- Wholesale sales
- Software as a service (SaaS) does not appear to be taxable as long as it is remotely accessed.
There are also certain types of organizations like government agencies and some non-profits with exemption certificates that are exempt from sales taxes. See the State of Alabama Sales Tax page for more information.
When do I need to collect sales tax in AL?
As a remote or ecommerce seller, you will be required to collect and remit sales tax in Alabama if and when your business achieves Alabama sales tax nexus.
There are two ways to achieve nexus in Alabama:
Alabama physical nexus
Alabama nexus is achieved through a type of physical presence in the State of Alabama. See below for details on how Alabama determines physical nexus.
Alabama economic nexus
Alabama economic nexus is achieved when a business makes $250,000 in eligible sales in a calendar year in the state.
What is Alabama’s physical nexus threshold?
Certain business activities create a physical nexus in Alabama. If you have physical nexus, you are required to collect and remit sales tax on all taxable sales that are shipped to Alabama.
Examples of business activities that can create physical Alabama nexus include:
- Owning or leasing physical property in the state.
- Having inventory in the state.
- Having employees present in the state, even if not there permanently.
- Having affiliates with a presence in the state.
- Using independent contractors in the state.
See Rule 810-6-2-.90.01 on the State of Alabama’s sales tax info page for additional business activities that create physical nexus in Alabama.
What is the Alabama economic nexus threshold?
Remote sellers that exceed $250,000 in total retail sales in the state during the previous calendar year are required to collect and remit Alabama use tax.
To calculate the $250,000 sales threshold, the following applies:
- Retail sales include taxable and nontaxable sales made directly by the seller.
- Retail sales do not include:
- Wholesale sales for resale where the buyer presents an Alabama issued sales tax license or resale certificate.
- Any sales taking place through a SSUT participating marketplace that is collecting Alabama state sales tax on behalf of the marketplace sellers.
If you meet the Alabama economic nexus threshold, your obligation to collect Alabama sales tax begins on January 1 following the year your business exceeds the threshold.
How does Alabama work with marketplaces?
Some states have different sales tax nexus requirements when it comes to marketplaces (ex. Amazon, Etsy). However, Alabama’s economic nexus qualification rules are the same for marketplace facilitators as they are for individual sellers. A marketplace facilitator is required to register and pay sales tax in Alabama if they made $250,000 worth of sales in the state in the previous calendar year.
However, marketplace facilitators must register for the Simplified Sellers Use Tax which charges a flat tax rate of 8%, regardless of the locality the purchase is being made from.
Individual sellers who make sales through a marketplace do not include their marketplace sales when calculating their own Alabama economic nexus threshold as the marketplace assumes the tax liability for all sales through their platform.
See Alabama’s Simplified Sellers Use Tax info page for more information about the requirements for marketplace sellers around Alabama sales tax registration.
Selling online in Alabama?
If you’re unsure of whether you need an Alabama sales tax license or how much to charge in taxes in different localities, TaxCloud can help your business remain sales tax compliant in Alabama. Automatically collect sales tax at every transaction, ditch filing manual sales tax returns, and stop responding to audits on your own.
Contact us to get started.
Are there any Alabama sales tax holidays in 2024?
Currently, there are two recognized Alabama sales tax holidays.
1. Alabama Back-to-School Sales Tax Holiday
- 2024 dates: July 19-27, 2024
- This annual Alabama sales tax holiday begins at 12:01 a.m. on the third Friday in July and ends at midnight on the following Sunday.
- Alabama’s Back-to-School Sales Tax Holiday is a state sales tax holiday but many localities also participate in it.
- Eligible items (full list):
- Clothing – $100 or less
- Computers – $750 or less
- Computer software – $750 or less
- School computer supplies – $750 or less
- School supplies – $50 or less
- School art supplies – $50 or less
- School educational material – $50 or less
- Books – $30 or less
2. Alabama Severe Weather Preparedness Tax Holiday
- 2024 dates: February 23 – March 2, 2024
- This annual Alabama sales tax holiday begins at 12:01 a.m. on Friday of the last full weekend in February and ends at midnight on the following Sunday.
- Alabama’s Severe Weather Preparedness Sales Tax Holiday is a state sales tax holiday but many localities also participate in it.
- Eligible items (full list):
- Supply examples (must be $60 or less per item):
- Plastic sheeting
- Portable generators and power cords – $1,000 or less
- Supply examples (must be $60 or less per item):
Retailers are required to participate and may not charge tax on items that are legally tax exempt during the sales tax holiday.
Is Alabama a Streamlined Sales Tax (SST) member?
Currently, Alabama is neither a full nor an associate member of the Streamlined Sales Tax (SST) project.
How do I register for an Alabama sales tax license?
When you meet the requirements for Alabama nexus, you must register online for an Alabama sales tax license on the My Alabama Taxes (MAT) website.
It’s free to register for an Alabama tax ID and will take 3 to 5 days to process your application. Your filing frequency will be determined by the amount of business you do with Alabama residents.
See the State of Alabama’s Sales Tax info pages for more info.
Sales Tax Guides by State
Our sales tax guides provide an overview of sales tax rates, nexus thresholds, taxable and nontaxable items, along with other valuable tax knowledge for every U.S. state.
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia