Sales Tax Guide for Alabama

What Is Taxable in Alabama?

In Alabama, most tangible personal property is subject to sales tax. However, some items are exempt; such as prescription drugs, groceries (with some exceptions), certain digital products, medical devices, and some agricultural equipment.

If your business sells taxable goods or services, you need to collect and remit sales tax appropriately. Businesses should also check whether additional use taxes apply when purchasing out-of-state products.

Who Needs to Collect Sales Tax?

Businesses required to collect sales tax include:

• Retailers with a physical presence in Alabama
• Online sellers that meet the state’s economic nexus threshold
• Service providers, depending on the service offered

Alabama enforces an economic nexus threshold of $100,000 in sales or 200 transactions per year. If you exceed this limit, even without a physical presence in Alabama, you must register and collect sales tax. Businesses that fail to do so may face penalties and back taxes, that’s why doola’s Bookkeeping service is essential for staying on top of regulations and avoiding legal problems.

How to Register for a Sales Tax Permit in Alabama

Getting a sales tax permit in Alabama is simple:

1. Gather necessary documents: EIN, business license, and business details.
2. Visit the Alabama Department of Revenue website.
3. Complete the online application.
4. Receive your Sales Tax License and start collecting tax.

Without a sales tax permit, collecting tax is illegal, so be sure to register before making taxable sales. You can visit Alabama’s Department of Revenue website to access the online application portal.

doola’s expert bookkeeping team can also help you out, so you don’t have to worry about bureaucratic hassles while trying to run and grow your business (we know this process can feel overwhelming!).

How to Calculate Sales Tax in Alabama

To properly calculate sales tax, follow these steps:

Step 1:
Determine the correct sales tax rate based on your business location and the buyer’s location.

Step 2:
Collect the appropriate amount at the point of sale.

Step 3:
Keep accurate records of all transactions.

Alabama requires businesses to file sales tax returns monthly, quarterly, or annually, depending on sales volume. Always check the filing due dates to avoid late fees.

Additionally, businesses need to be aware of different sales tax rates depending on the county or municipality. Some areas charge an additional tax that must be factored into your calculations.

How to File and Pay Sales Tax in Alabama

To file and pay sales tax in Alabama, you need to understand the state’s resale tax exemption rules. Some products or services do not qualify for exemptions, so knowing the distinction is crucial.

The general process involves logging into the Alabama Department of Revenue’s online portal, reporting your total sales and taxable sales, calculating and submitting the amount owed, and paying using an accepted payment method.

We understand this can be quite complicated, however with doola’s specialized Bookkeeping service, you don’t need to worry. We will guide you in following the correct procedures, ensuring your business benefits from Alabama sales tax exemptions while maintaining compliance.

Common Sales Tax Exemptions in Alabama

Some businesses and organizations qualify for sales tax exemptions, such as:

• Purchases for resale (requires a resale certificate)
• Sales to nonprofit organizations
• Certain manufacturing and agricultural purchases

To claim an exemption, businesses must use the proper exemption certificates and maintain accurate records. Misuse of exemption certificates can lead to audits and fines.

Remote Seller and Marketplace Sales Tax Rules in Alabama

For remote sellers and marketplace platforms like Amazon, eBay, Shopify, and Etsy, Alabama has specific sales tax rules.

The economic nexus threshold is set at $100,000 in sales or 200 transactions, requiring businesses exceeding these limits to comply with Alabama’s remote seller sales tax regulations.

Additionally, Alabama has a Simplified Sellers Use Tax (SSUT) program, which allows remote sellers to collect a flat 8% tax rate instead of varying local rates. This can be beneficial for businesses selling across multiple locations.

What Triggers a Sales Tax Audit

The Alabama Department of Revenue may audit businesses for various reasons, including; missing or incorrect sales tax filings, frequent late payments, discrepancies between reported sales and actual revenue, and misuse of exemption certificates.

To reduce audit risk, keep detailed records of sales, exemptions, and tax payments. Businesses should also conduct periodic internal reviews to ensure tax filings are accurate.

FAQs About Sales Tax in Alabama

Common questions about Alabama sales tax include:

Does Alabama tax digital goods?

Some digital goods are taxable, but others are exempt. Always check state guidelines.

Do out-of-state businesses need to collect Alabama sales tax?

If you exceed the $100,000 or 200-transaction threshold, yes.

What happens if I overcharge or undercharge sales tax?

You may need to refund customers or pay the difference to the state. Keeping accurate records prevents issues.

Are any services taxable in Alabama?

Most services are not taxed, but there are exceptions, such as repairs and installation services.

Stay Compliant With doola

Sales tax compliance doesn’t have to be a headache. By staying informed and using the right tools, you can avoid penalties and keep your business running smoothly.

doola can provide guidance and tools to ensure compliance, supporting businesses with financial solutions, tax guidance, and bookkeeping.