Understanding Alabama Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Alabama.
In Alabama, a license tax is imposed on retailers of tangible personal property and selected services; operators of places of amusement and entertainment; persons selling new and used automotive vehicles, truck trailers, or semitrailers; persons or firms selling food products through vending machines; and on sales of farm equipment. A tax is also imposed on each person in the business of leasing or renting tangible personal property.
General Sales Tax Rate is Four Percent
The Alabama state sales and use tax rates range from 1.5 percent to 5 percent, with most taxable items taxed at 4 percent. Your actual rate of tax may be higher because local governments in Alabama are allowed to assess a local sales and use tax.
The rates vary as follows for specific items and leases or rentals:
|Item ||Sales Tax Rate |
|Farm machinery and equipment ||1.5% |
|Leases and Rentals--Automobiles, truck trailers, semi-trailers, house trailers ||1.5% |
|Leases and Rentals--Generally ||4.0 |
|Leases and Rentals--Linens and garments ||2.0% |
|Mining, quarrying, processing, compounding and manufacturing machinery ||1.5% |
|Public works contractors ||5.0% |
|Vehicles (including automobiles, house trailers, truck trailers, semitrailers, mobile home set-up materials and supplies, and mobile homes) ||2.0% |
|Vending machine sales (of food products) ||3.0% |
|Vending machine sales (of non-food products) ||4.0% |
Tax-exempt items. Alabama has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt. You'll want to check and see if any items you sell are exempt from the sales tax.
Leases Are Taxable Transactions in Alabama. Leases are subject to sales and use tax at the same rate as if the item is sold. Leasing or rental is a transaction where property is used by other than the owner for a consideration without transfer of title to the property. Lease-sale contracts in which ownership of the property is transferred to the lessee upon completion of the payments, are treated as sales rather than rentals.
Who Is Responsible for Paying Sales Tax
The consumer is responsible for paying the sales tax, however, the tax is collected from the retailer for convenience sake. The retailer is required to give each purchaser a receipt that includes the following list of information:
- name and place of business
- name and address of purchaser
- description of property sold
- date of sale
- sale price
- amount of tax collected
- seller's license or authority number
Can I absorb the sales tax for my customers? In Alabama, it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Obtaining tax permits in Alabama
Your business must obtain an annual license from the Department of Revenue, if you are subject to sales tax. (This includes businesses engaged in leasing or rental.) You do not have to pay a fee for a tax permit in Alabama.
Alabama Exempts Some Sales From Tax
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Exemption certificate. Alabama has a form (Form STE-1) that must be completed for a proper exemption certificate. The exemption certificates are needed for tangible personal property purchased for resale, manufacturing, tax exempt customers, etc. The same certificate of exemption form (Form STE-1) is completed by resellers, resellers for sales to exempt customers, and manufacturers.
Blanket resale certificates. Certificate holders regularly engaged in making tax-exempt purchases may furnish a certificate to the seller specifying that all tangible personal property subsequently purchased will be for the purpose shown on the certificate. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and remains in force until revoked in writing.
Purchases from out-of-state vendors.
Alabama use tax is due on the use, storage, or consumption of tangible personal property in Alabama that is purchased out-of-state. Use tax complements the sales tax and is not levied when the sales tax is imposed.
Procedure for accepting resale certificates.
A sale is exempt if a seller receives in good faith from a purchaser an Alabama resale or exemption certificate (Form STE-1). In Alabama, Form STE-1 is the only exemption certificate that relieves the seller, when acting in good faith and exercising reasonable care, of liability for any sales or use tax. The one exception to this rule is that Alabama will accept the Multistate Tax Commission's "Uniform Sales and Use Tax Certificate - Multijurisdictional" in place of the STE-1.
Procedure for accepting blanket certificates. Certificate holders regularly engaged in making tax-exempt purchases may furnish a certificate to the seller specifying that all tangible personal property subsequently purchased will be for the purpose shown on the certificate. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and remains in force until revoked in writing.
Sales and use tax liability for out-of-state mail order and catalogue retailers. Alabama has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Alabama. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Alabama? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Alabama for purposes of taking and transmitting orders from Alabama? If your employee or independent contractor goes into Alabama to take or transmit orders your business may have physical presence in Alabama. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Alabama for purposes of delivering property? Frequent deliveries in Alabama by your trucks will give you physical presence in Alabama.
When Are Sales Tax Payments Due
The sales tax is due monthly, with returns and remittances to be filed on or before the 20th day of the month for the previous month's sales. However, a taxpayer may elect to file and pay state sales tax on a calendar quarter basis when the total state sales tax for which the taxpayer is liable averages less than $200 per month during the preceding calendar year.
The election to file and pay quarterly shall be made in writing to the ADOR no later than February 20 of each year. Also, if a taxpayer's total state sales tax liability during the preceding calendar year is $10 or less, the taxpayer may file state sales tax on a calendar year basis. Note: If paying via EFT, the EFT payment information must be transmitted by 4:00 p.m. (Central Standard Time) on or before the due date, to be considered timely paid.
Use Tax Is Imposed on Same Basis as Sales Tax
Use tax is a tax on use, storage, or consumption in Alabama provided that sales tax has not already been paid. The tax remains a liability of the purchaser until paid, unless the purchaser has a receipt showing payment of the tax to the retailer.
Responsibility for collecting use tax. Retailers are responsible for collecting the use tax on use, storage, or consumption in Alabama provided that sales tax has not already been paid. The tax remains a liability of the purchaser until paid, unless the purchaser has a receipt showing payment of the tax to the retailer. Retailers who pay the tax are required to give receipts to the purchasers. It is presumed that all tangible personal property sold for delivery in the state is for storage, use, or consumption in Alabama unless evidence is available that the sale was for resale.
Department of Revenue Oversees Sales and Use Taxes
For additional information related to Alabama sales and use taxation, contact the Department of Revenue.
Alabama Department of Revenue
Office of the Commissioner
P.O. Box 327001
Montgomery, AL 36132-7001