As a business owner, you act as an agent for the state of Alabama and collect sales tax on behalf of the Department of Revenue. When levying this tax, staying updated on local and federal changes is important to ensure compliance. The general rate for Alabama Sales Tax is 4% but Alabama’s sales tax system can be a little complex, as it involves both a state rate and potential local rates. You can check the following for the current Alabama State Tax Rates:
Alabama State Sales Tax Rates:
- General rate: 4% (effective September 1, 2023)
- Food/Grocery: 3% (effective September 1, 2023)
- Automotive: 2%
- Manufacturing: 1.5%
- Farm Machinery: 1.5%
- Vending through Vending Machines: 3%
- Vending (not machines) & Amusement: 4%
Additionally, you must keep in mind the new overtime exemption that will take effect for certain payments made to full-time hourly employees starting January 1. To ensure compliance with these requirements, it’s important to understand the tax implications before making payroll. Another change to keep in mind is that the state portion of the food sales tax will drop from 4% to 2% on Sept. 1, 2024, IF education revenue grows by at least 3.5% in that fiscal year. This reduction will save Alabama shoppers slightly over $300 million annually. Alabamians should stock up on groceries now to benefit from these savings.
How to Register to Collect Alabama Sales Tax?
Registering to collect Alabama sales tax involves a few steps, depending on your specific situation:
- You need to register if you have Nexus in Alabama. This means you have some physical or economic presence in the state, creating a connection for sales tax purposes. Some common triggers for nexus include:
Having a physical location in Alabama (store, office, warehouse) - Making deliveries into Alabama
- Having employees working in Alabama
- Having Alabama customers exceeding certain thresholds
Registering Alabama Sales Tax Online
- The recommended method is to register online through My Alabama Taxes (MAT): https://myalabamataxes.alabama.gov/
- You can register for various tax accounts through MAT, including sales tax.
- During registration, you’ll need to provide information about your business, contact details, and estimated sales tax liability.
How to Collect Alabama Sales Tax?
Once you’re registered, you’ll be assigned a filing frequency by the Department of Revenue—generally monthly, quarterly, or annually. The frequency is based on the amount or volume of your company’s sales. You’ll also be responsible for remitting any local surtaxes collected to the appropriate jurisdiction.
Most states provide a discount for timely filings, so it’s worth it to keep up with your returns! If you miss a filing deadline, the state may charge penalties. To avoid late fees, it’s best to use a sales tax automation software that can help you stay on top of your filing requirements. Using software can also help you avoid errors, which could result in fines and interest charges.
Alabama Sales Tax Exemption
A comprehensive understanding of Alabama sales tax is essential to navigate the unique rates, exemptions, and regulations. It also allows companies to properly allocate expenses and maintain compliance with state and local tax authorities.
For example, some sales are exempt from taxation, such as those to the federal government, state and county-owned hospitals and nursing homes, and school supplies purchased with food stamps. Additionally, some manufacturers qualify for a sales tax exemption that shifts the burden to the customer, and charitable organizations may also be exempt from paying taxes.
Nonprofits, however, must present a resale certificate to be eligible for an Alabama sales tax exemption. It is also possible to trigger nexus through economic activity, even if you do not have a store, warehouse, office or any other physical presence in Alabama (see Avalara AvaTax’s Ultimate Guide to US Economic Nexus). Additionally, the state requires that remote sellers who do not collect and remit sales tax report on their sales activity, provide customers with annual purchase summaries, and file an information return. These tasks can take a lot of time to complete, and mistakes can be costly.
Alabama Sales Tax Due Dates
Once your company has registered to collect sales tax in Alabama, keeping up with the filing and payment deadlines is crucial. The state can impose fines and interest on companies that fail to file their returns and remit the collected taxes on time.
Alabama requires companies to file sales tax returns monthly, quarterly, or annually. The filing frequency is determined by the company’s projected sales tax liability. The return must accurately reflect all of the company’s sales and associated taxes paid.
The due date for each filing period is the 20th day of the month that follows the reporting period. If the due date falls on a weekend or City holiday, then the return and associated payments are due the following business day