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Navigate Alabama's 2023 sales tax landscape with our comprehensive guide, covering compliance, rates, and regulations to keep your business on track.
Alabama sales tax at a glance
Alabama sales tax rates & calculations in 2023
The Alabama sales tax rate in 2023 is between 4% and 11.5%. This comprises a base rate of 4% plus a mandatory local rate ranging from 0% to 7.5%. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 11.5%.
List of local sales tax rates in Alabama
You can look up the full table of sales tax rates in each city and county in Alabama on the Department of Revenue website. Here’s a snippet of the same:
Recent tax rate changes in Alabama
On September 1, 2023, Alabama reduced the sales tax rate on groceries from 4% to 3%. This change is meant to provide relief to consumers facing high inflation.
FAQs
How do you calculate Alabama sales tax?
To calculate Alabama sales tax, you can use the following formula:
Sales tax = (base rate + local rate) * purchase price
For instance, if the base rate is 4%, the local rate of to 7.5%, and the purchase price is $100, then the sales tax would be $11.5.
What are the penalties for not paying Alabama sales tax?
If you fail to pay Alabama sales tax on time, you may face penalties of 10% of the unpaid tax plus interest charges. The interest rate is determined quarterly.
What’s the difference between destination-based and origin-based sales tax states?
Destination-based sales tax states collect tax based on where the customer is located. Origin-based states collect tax based on where the seller is located.
Is the Alabama sales tax destination-based or origin-based?
Alabama is a destination-based sales tax state. Sellers must collect tax based on the location of the customer.
Is Alabama a streamlined sales tax state?
Alabama is not a Streamlined Sales Tax State.
The Streamlined Sales Tax Project (SSTP) aims to simplify sales tax collection across states that adopt its Streamlined Sales and Use Tax Agreement (SSUTA) and Alabama has not joined the SSTP or implemented the SSUTA.
Sales tax nexus table in Alabama
FAQs
Do I need an Alabama seller's permit if I’m only a wholesaler?
Yes, you need an Alabama seller's permit even if you only make wholesale sales in the state. Wholesale sales are taxable unless the buyer provides a valid resale certificate.
Do I need an Alabama seller's permit if I only sell temporarily in the state?
Yes, if you make sales within Alabama, even temporarily, you need an Alabama seller's permit. There is no exception for temporary sellers.
What's exempt in the state of Alabama
Here’s a quick list of what’s exempt in Alabama
- Prescription drugs
- Feed for livestock and livestock itself
- Seed used for planting crops
- Raw materials
- Medical services
- Food purchased with food stamps
Special category rates apply to clothing, groceries, and prepared food at 3% (not exempt, but reduced rate)
FAQs
Are groceries taxable in Alabama?
Starting September 1, 2023, the sales tax rate on groceries has been reduced from 4% to 3% in Alabama. So most groceries will be taxed at 3%.
Is clothing taxable in Alabama?
Yes, all clothing is taxable in Alabama unless it qualifies for a specific exemption. There is no general exemption for clothing.
Are digital products taxable in Alabama?
Yes, digital products like ebooks, music, movies, etc. are taxable in Alabama. Downloadable software is also subject to sales tax.
Is software-as-a-service (SaaS) taxable in Alabama?
No, SaaS is not considered a taxable service in Alabama. Computer software is classified as tangible personal property.
Are services taxable in Alabama?
Generally no, services are not subject to sales tax in Alabama. However, any services that result in the production of tangible personal property can be taxable.
Excise taxes in Alabama
- Cigarettes - $0.675 per pack of 20.
- Other tobacco products - 40% of wholesale price
- Gasoline - $0.29 per gallon
- Diesel - $0.30 per gallon
- Marijuana - 9%
Remote sellers in Alabama
Out-of-state sellers with no physical presence can still have economic nexus based on $250,000 or more in annual Alabama sales. Remote sellers meeting this threshold must register and collect Alabama sales tax.
Collecting sales tax in Alabama
Let’s look at the steps to collect sales tax in Alabama now.
How to collect sales tax in Alabama if you are not based in Alabama (Out-of-State)
Even if you do not have a physical presence in Alabama, you must register with the Department of Revenue if you meet the economic nexus threshold of $250,000 or more in annual Alabama sales.
You can voluntarily register to collect and pay use tax for your Alabama customers even if you don't meet the threshold.
There are two main ways to reach nexus in Alabama:
- Having a physical presence such as an office, warehouse, employees, etc. in Alabama
- Having over $250,000 in annual sales delivered to Alabama customers
Once you obtain a seller's permit in Alabama, you can begin collecting sales tax even if you don’t have a physical location in the state.
Register for an Alabama seller's permit online through the Alabama Department of Revenue website.
Should you collect sales tax on shipping charges in Alabama?
If shipping charges are separately stated on the invoice, they are exempt from sales tax in Alabama. However, if shipping is bundled into the product price, it becomes part of the taxable transaction.
Sellers must collect Alabama sales tax on the full sales price, including shipping when it is not separately stated. If uncertain, it is safest to collect tax on the full invoiced amount including shipping.
Filing and paying sales taxes in Alabama
Alabama requires all sellers to file sales tax returns electronically through My Alabama Taxes (MAT). Sales tax payments can be made online or mailed to the Department of Revenue.
Returns must be filed monthly, quarterly, or annually depending on your assigned filing frequency. You must file a return even if no sales tax was collected during the period.
Sales tax return filing schedule and due dates in Alabama
The Department of Revenue assigns filing frequencies based on your anticipated annual tax liability.
Monthly: Returns and payments are due by the 20th of the following month. For example, the January sales tax is due on February 20.
Quarterly: For sellers with less than $200 in average monthly tax liability. Due dates are April 20, July 20, October 20, and January 20 for each calendar quarter.
Annually: For sellers with less than $200 in total annual taxes. The return for the preceding calendar year is due on January 20.
Note: If a due date falls on a weekend or holiday, the deadline moves to the next business day.
Filing penalties in Alabama
Late filing penalties are 10% of unpaid taxes. You must file taxes in Alabama even if there was no activity during a certain timeframe.
When are returns due in Alabama?
Alabama sales tax returns are due by the 20th day of the month following the tax period end date. For example, if your tax period ends March 31, the return is due April 20.
FAQs
What are the Alabama sales tax due dates?
- Monthly returns: 20th of the following month
- Quarterly returns: April 20, July 20, October 20, January 20
- Annual returns: January 20
I didn’t collect any Alabama sales tax during this period. Do I still need to file a return?
Yes, every seller must submit a sales tax return for each assigned period even if they collected $0 in sales tax.
Can I get an extension on filing my Alabama sales tax return?
Yes, you can submit a written request no later than the due date to receive a 30 day extension. However, tax payment is still due on the original deadline.
Can I amend an Alabama sales tax return?
Yes, you can file an amended return to correct errors or add missing information from a previous return. You may owe additional tax, interest, or penalties when amending a return.
What is the penalty for filing and/or paying Alabama sales tax late?
The late payment penalty is 10% of unpaid tax plus interest charges. Total penalties cannot exceed 25% of net tax due.
Audit & appeals process in Alabama
The audit & appeals process is a series of steps that a business must go through if they are audited by the Alabama Department of Revenue.
The process begins with the auditor contacting the business to schedule an audit. The auditor will review records and returns to identify any unpaid taxes.
If discrepancies are found, the auditor issues an assessment detailing their findings. The business can then appeal the assessment. If the appeal is denied, the business can further appeal to the Alabama Tax Tribunal.
Alabama sales tax audit process
The Alabama sales tax audit process is:
- The auditor contacts the business to schedule an audit
- Auditor reviews records and tax returns
- Auditor issues assessment if discrepancies are found
- Businesses can appeal assessment
- If the appeal is denied, a business can further appeal to the Tax Tribunal
What to expect during the audit?
The auditor will review your books, records, accounting systems, and tax returns. They may request documents like sales invoices, bank statements, and accounting records. Remember to cooperate fully with the auditor to ensure a smooth audit.
After the audit – Appealing the results
If you disagree with the audit results, you can contest them by filing a petition for review within 30 days. The appeals process includes:
- Filing a petition and paying any undisputed tax
- Attending a conference with the auditor
- Appealing to the Alabama Tax Tribunal if the conference is unsuccessful
Sales tax registration in Alabama
Here are the steps for registering for sales tax in Alabama:
How to register for sales tax in Alabama?
You can register for an Alabama seller's permit online through the Alabama Department of Revenue's website. The registration process is simple and can be completed in just a few minutes.
During the registration process, you will need to provide the following key information:
- Your business's legal name, address, phone number, and email address.
- Your Social Security Number or Employer Identification Number (EIN). This serves as your tax ID number for sales tax purposes.
- The date that you started or plan to start business activities in Alabama that would trigger sales tax obligations.
- Your projected total monthly sales and projected monthly taxable sales in Alabama specifically. Providing estimates helps the Department of Revenue assign the appropriate filing frequencies.
- A detailed description of the types of products and services you sell.
- An explanation of why you need an Alabama seller's permit.
Once you successfully register and obtain your seller's permit, you will be required to charge, collect, report, and remit Alabama sales taxes on all qualifying sales in the state. You can manage sales tax compliance manually by calculating the tax yourself.
You can also use a complete white-glove sales tax solution like Numeral that seamlessly integrates with your shopping cart, POS system, or marketplace channels—accurately calculating sales tax in real time and making the process much easier.
Registration requirements for online sellers in Alabama
Online sellers must register if:
- You exceed $250,000 in annual Alabama sales
- You have a physical presence like a warehouse
- You specifically target Alabama customers through advertising
- Your marketplace has an Alabama physical presence
Agencies to register within Alabama
You only need to register with the Alabama Department of Revenue for a seller's permit. No additional agency registrations are required.
More Information & Contacts
For Alabama sales tax questions, contact:
- Alabama Department of Revenue
- Phone: 334-242-1170
- Website: https://revenue.alabama.gov
There you have it—a comprehensive guide on Alabama's sales tax regime. Need help filing taxes for your ecommerce store? Get a demo with Numeral now.
