Alabama Sales Tax Guide

Everything you need to know about collecting sales tax in Alabama.

When do I need to collect sales tax in Alabama?

As an e-commerce seller, you will need to collect sales tax in Alabama if you have:

$250,000 in annual retail sales in (economic nexus) OR
Physical presence in Alabama (physical nexus).

What is the sales tax rate in Alabama?

Alabama’s general sales tax rate is 4%. Reduced rates apply to certain types of property (i.e., automobiles, farm machinery, etc.). Below are additional rates imposed under Alabama law:

- Local Sales Tax: Alabama localities impose their own sales tax at rates ranging from 0.10% to 5.0%. Some localities are state-administered, others are not.
- Simplified Sellers Use Tax (SSUT): The SSUT rate is a flat 8%. 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.
- Qualifying remote sellers that have been approved by Alabama to participate in the SSUT can use the simplified rate of 8%.

See the Alabama Department of Revenue website for more information or search local sales, use, lodgings & rental tax rates on their Sales and Use Tax Rates page.

What is the Physical nexus threshold in Alabama?

Certain business activities create 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 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 for additional business activities that create physical nexus in Alabama.

What is the Economic nexus threshold in Alabama?

Remote sellers that exceed $250,000 in total retail sales in 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 taxes on behalf of the marketplace sellers. (See Simplified Sellers Use Tax (SSUT) for more information.)

Your obligation to collect begins on January 1 following the year your business exceeds the threshold. For example, if you exceed the threshold in the first 8 months of 2023, you do not need to begin collecting until January 1, 2024.

What are considered taxable items in Alabama? In Alabama, tangible goods are taxable. Here are a few examples of tangible goods:

Tangible personal property, unless specifically exempted
Prepared food and food for home consumption
Clothing
Digital goods

What are considered non-taxable or exempt items in Alabama?

Here are a few examples of non-taxable and exempt items in Alabama:

Prescription drugs
Certain agricultural items
Software as a service (SaaS) does not appear to be taxable as long as it is remotely accessed. We are aware of no definitive guidance from the state to date.

See the Alabama Sales Tax Brochure for more information.

Sales Tax Holidays in Alabama

Currently, Alabama has two recognized sales tax holidays:

Back-to-school sales tax: Beginning at 12:01 a.m. on the third Friday in July and ending at midnight on the following Sunday.
Severe weather preparedness: Beginning at 12:01 a.m. on Friday of the last full weekend in February and ending at midnight on the following Sunday.

Refer to this list for participating municipalities and counties. 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 a sales tax permit in Alabama

You can register online on the Alabama Department of Revenue website OR TaxCloud can handle all state registrations for you. (Get in touch with our team here to find out more.) Have questions? Get in touch with our team of TaxGeeks here.