Alabama Economic Nexus: What Out-of-State Businesses Need to Know about Sales Tax Requirements

If you're an out-of-state business selling to customers in Alabama, you must understand the state's economic nexus law. Avoid back taxes, fines, and penalties for non-compliance with Galvix's expert guidance.

If your business sells products across state lines, you may be required to collect and remit sales tax in Alabama. But how do you know if you meet the state’s economic nexus thresholds? And what happens if you don’t comply with Alabama’s sales tax requirements? In this article, we’ll answer these questions and provide an overview of Alabama’s economic nexus law.

Alabama Economic Nexus

Understanding Alabama’s Economic Nexus Thresholds

Alabama’s economic nexus law states that out-of-state businesses must collect and remit sales tax if they have more than $250,000 in sales AND 0 or more transactions in the Previous Calendar Year. This means that businesses based in other states selling to customers in Alabama must know whether their business has crossed the state’s threshold. Failure to do so could result in back taxes, fines, or other penalties for non-compliance.

Alabama’s Economic Nexus Law: Effective Date

Alabama’s Economic Nexus Law went into effect for out-of-state businesses on October 1, 2018. If your business crossed Alabama’s economic nexus threshold after October 1, 2018, then your business needs to get a sales tax permit. If you crossed Alabama’s economic nexus threshold before this date, you would only need to register for a sales tax license in Alabama starting when the law went into effect on October 1, 2018.

Alabama’s Economic Nexus Law: What Businesses Need to Do

Businesses that meet Alabama’s economic nexus threshold must register for a sales tax permit and begin collecting and remitting sales tax. This means the business must register with the state of Alabama and keep records of taxable sales. They must also set up their transaction platforms to calculate sales tax accurately based on the products sold. After registration, businesses need to stay up-to-date with any changes regarding filing guidelines that may arise in the future.

Alabama’s Economic Nexus Law: Sales Tax Permit Deadline

Businesses that cross Alabama’s economic nexus threshold must register for a sales tax permit by January 1st of the following year.

Alabama’s Economic Nexus Law: Penalties for Non-Compliance

If you’re an out-of-state business that crosses Alabama’s economic nexus threshold and doesn’t get a sales tax permit, you could be subject to audits, penalties, and interest. The audits will review the prior period of time to see if taxes are due, with penalties applied based on the amount not paid. Interest will also accrue at the rate determined by the state for any unpaid taxes or late filing.

Getting Help with Alabama’s Economic Nexus Requirements

Galvix can help you determine if your business meets Alabama’s economic nexus thresholds and, if so, obtain a sales tax permit for your business. We offer a free initial consultation to help businesses understand their sales tax obligations in Alabama. Click here to learn more and schedule your free consultation.

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