Alabama

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

(1) $250,000 in annual retail sales in (economic nexus), or

(2) Physical presence in Alabama (physical nexus).

Below, we will highlight some of the basic provisions of Alabama sales tax law.

1. What is the tax rate range for Alabama?
   1. State: Alabama’s general sales tax rate is 4%.  Reduced rates apply to certain types of property (i.e., automobiles, farm machinery, etc.).  See Sales Tax - Alabama Department of Revenue
   2. Local: Alabama localities impose their own sales tax at rates ranging from 0.10% to 5.0%.  Some localities are state-administered, others are not. See Sales and Use Tax Rates - Alabama Department of Revenue
   3. Simplified Sellers Use Tax (SSUT): 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 Simplified Sellers Use Tax (SSUT) for more information.
2. Do you have physical or economic nexus in Alabama?

1. 1. Physical nexus. 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 in Alabama include:
      1. Own or lease physical property in the state,
      2. Have inventory in the state,
      3. Have employees present in the state, even if not there permanently,
      4. Have affiliates with presence in the state, or
      5. Use independent contractors in the state.

 

See Alabama Rule 810-6-2-.90.01 for additional business activities that create physical nexus.

1. 1. Economic nexus.  Remote sellers that exceed $250,000 in total retail sales in the previous calendar year are required to collect and remit Alabama sellers use tax.  For calculating the $250,000 sales threshold, the following apply:
      1. Retail sales includes taxable and nontaxable sales made directly by the seller
      2. Retail sales does not include:
         1. Wholesale sales for resale where the buyer presents an Alabama issued sales tax license/resale certificate, and
         2. Any sales taking place through a SSUT participating marketplace that is collecting Alabama taxes on behalf of the marketplace sellers.
      3. Your obligation to collect begins on January 1 following the year you exceed the threshold. For example, if you exceed the threshold in the first 8 months of 2022, you do not need to begin collecting until January 1, 2023. You may, of course, wish to register sooner.

See Simplified Sellers Use Tax (SSUT) for more information.

1. What are examples of sales of taxable items?
   1. Tangible personal property, unless specifically exempted
   2. Prepared food and food for home consumption
   3. Clothing
   4. Digital goods
2. What are examples of sales of nontaxable/exempt items?
   1. Prescription drugs
   2. Certain agricultural items
   3. 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.
   4. See Alabama Sales Tax Brochure for more information.
3. Are there any sales tax holidays?
   1. Currently, Alabama has two recognized sales tax holidays:
      1. 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.
      2. 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.
4. Is Alabama a member of the SST (Streamlined Sales Tax)?
   1. Currently, Alabama is neither a full nor an associate member of the Streamlined Sales Tax (SST) project.
5. How to get a sales tax permit / links to register in this state?
   1. You can register online at: Alabama Department of Revenue.
6. Rates
   1. Qualifying remote sellers that have been approved by Alabama to participate in the SSUT can use the simplified rate of 8%.
   2. A sales tax rate look-up tool is available at Sales and Use Tax Rates - Alabama Department of Revenue.
   3. Local rate tables are also available at Sales and Use Tax Rates - Alabama Department of Revenue.