Alabama Sales Tax Guide For Businesses

Know everything about sales tax in Alabama and get updated information to navigate tax regulations effectively.

Quick highlights on Alabama Sales tax

Sales tax rates

Alabama state sales tax range

5% - 12%

Base sales tax rate


Local Rate Range

1% - 8%

Economic Nexus Rules

Sales Threshold


Transactions Threshold

Not Applicable

Reference Period

Previous Calendar Year

Filing Details

Alabama Sales tax Calculator

Frequently Asked Questions

As a business, do I need to collect Alabama sales tax?

Businesses are required to collect sales tax in Alabama if they have a sales tax nexus in the state. This includes having a physical presence or reaching a specific sales level, which establishes an economic nexus. This is why understanding Alabama state sales tax obligations is crucial for compliance.

Do I have a physical nexus in Alabama?

A physical nexus in the state of Alabama is established if your business has a physical presence in the state. Following are examples of physical presence that can trigger a physical nexus in the state of Alabama:

  • Office: An "office" in the context of establishing a physical nexus refers to a physical location or workspace that a business maintains within the respective state. This could include a dedicated facility where administrative tasks are carried out, meetings are conducted, or business operations are managed.
  • Warehouse: A "warehouse" in the context of establishing a physical nexus refers to a physical facility used for storing goods, inventory, or products within the respective state. Businesses may utilize warehouses for various purposes, such as storage, distribution, or fulfillment of orders.
  • Employees (customer facing roles): In the context of establishing a physical nexus, "employees" refer to individuals who work for your business and are physically present in the respective state. Employees engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually trigger a physical nexus in this state.
  • Contractors (customer facing roles): "Contractors" are usually considered independent entities or individuals. They operate their own businesses and are not typically under the direct control of the hiring company. The presence of contractors engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually triggers a physical nexus in the state.

How do I know if I have an economic nexus in Alabama?

An economic nexus in Alabama is determined by your sales volume. If the annual sales of your enterprise exceed the given threshold in Alabama, you must register for an Alabama sales tax permit, collect tax on sales shipped to Alabama, and remit that sales tax to the state revenue authorities.

In Alabama, an economic nexus is established for your enterprise if your sales in the state exceed 250000 based on the sales from the Previous Calendar Year.

While calculating the sales or number of transactions for determining economic nexus, Alabama requires transactions made through marketplaces, like Amazon, eBay, etc. to be excluded. Transactions made for resale purposes should be excluded while determining whether a business has exceeded the Alabama economic nexus threshold. Finally, the sale of products that are non-taxable in Alabama should be included while determining the establishing of nexus in Alabama.

For an in-depth understanding, read our comprehensive guide on economic nexus reference periods.

Which goods are taxable in Alabama?

For businesses in Alabama, local sales tax is applicable on the sale of all tangible personal property sold at retail in the state. Services in Alabama are generally not taxable. However, if the service you provide includes creating or manufacturing a product, you may have to deal with the sales tax on these products.

Businesses need to stay updated on current tax information as well as the associated obligations and exemptions to avoid any compliance issues.

What items are exempt from Alabama sales tax?

Alabama exempts several items from sales tax- prescription drugs, gasoline and motor oil (with kerosene and fuel oil being taxable), fertilizer/insecticides/fungicides when used for agricultural purposes, seeds for planting purposes, feed for livestock and poultry (excluding prepared food for dogs and cats), baby chicks and poults, livestock, sales to the U.S., state of Alabama, and other governmental agencies of the state of Alabama, to name a few.

Understanding these exemptions is vital for businesses to calculate sales tax accurately in Alabama. If you are uncertain about the tax status of specific items, seek guidance from professionals at Galvix.

Is SaaS taxable in Alabama?

In Alabama, the sales tax laws consider certain types of software, SaaS, and related services as taxable. These include:

  • IaaS (Infrastructure as a Service): IaaS provides virtualized computing infrastructure over the internet. It includes services like virtual machines, storage, and networking. Examples include Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform.
  • PaaS (Platform as a Service): PaaS provides a platform allowing customers to develop, run, and manage applications without dealing with the complexity of building and maintaining the underlying infrastructure. Examples include Heroku and Google App Engine.
  • SaaS - General (Software as a Service): SaaS delivers software applications over the internet, typically on a subscription basis. Users can access the software through a web browser. Examples include Google Workspace, Microsoft 365, and Salesforce.
  • SaaS - On premises: This refers to Software as a Service installed and operated from the customer's in-house server and computing infrastructure rather than a third-party server.
  • SaaS - Security: SaaS solutions focused on providing security services, such as antivirus software, firewall protection, and threat detection.
  • SaaS - Storage: SaaS offerings that primarily provide storage solutions over the internet. Examples include cloud storage services like Dropbox and Google Drive.
  • SaaS - With downloadable app or SDK: SaaS that comes with a downloadable application or Software Development Kit (SDK) for additional functionality or integration with other software.
  • Software delivered electronically: Any software that is distributed and accessed electronically, usually over the internet, without physical media.
  • Software delivered on tangible media: Software distributed and obtained through physical means, such as CDs or DVDs.
  • Software delivered through load & leave: This refers to software loaded onto a system or device that does not require an ongoing internet connection.

However, sales tax laws change frequently, so it is vital to remain up-to-date with the latest regulations on the sales tax of Alabama for digital goods. Checkout our latest blog to learn more about SaaS sales tax.

What is the deadline to obtain a Alabama sales tax permit after establishing a nexus?

If a business has a physical nexus in Alabama, it must obtain a sales tax permit from the Alabama Department of Revenue and start collecting sales tax on transactions as on the date of establishing the physical nexus. Businesses that establish an economic nexus in Alabama need to obtain a sales tax permit and start collecting taxes, latest by Upcoming Jan 1, from the date they establish the economic nexus.

It is important to obtain the sales tax permit and start collecting taxes as per the deadlines mentioned above, in order to avoid back taxes and penalties.

How can one get a Alabama sales tax permit?

To obtain a sales tax permit in Alabama, businesses need to register with the Alabama Department of Revenue. This process is streamlined and can be completed online through the online portal provided by Alabama Department of Revenue. To comply with Alabama's sales tax laws, businesses need to get a tax permit.

To get a sales tax permit in Alabama, you need to provide detailed information about the business, such as the type of business, FEIN, personal details of the owner, business registration, nature of business activities, and several others on the Alabama Department of Revenue website. You will then get a sales tax number. This number is important for collecting, reporting, and paying the sales tax to the state government.

For detailed instructions and guidance on the registration process, connect with the experts at Galvix.

How should a business collect sales tax in Alabama?

Businesses in Alabama must collect sales tax from customers on relevant transactions. The collected tax must align with the Alabama sales tax rate, which varies by location. Enterprises should regularly verify the sales tax rates to ensure accurate collection. To learn the best practices, explore our sales tax compliance guide.

Where can I file my Alabama sales tax return?

You can file the Alabama sales tax return by visiting the online portal provided by the Alabama Department of Revenue at:

When should a business file Alabama sales tax return?

Businesses in Alabama must file state sales tax returns periodically. The frequency, i.e., monthly, quarterly, or annually, is determined by the state based on the tax liability.

Typically, sales tax and use taxes is due monthly, with returns and remittances filed on or before the 20th of next month for the previous month’s sales. However, businesses can request a different filing status based on their annual tax liability.

In general, the following are the filing deadlines for Alabama, based on the assigned filing frequency to you by the state:

  • Monthly Filing: 20th of next month
  • Quarterly Filing: 20th day after quarter end
  • Yearly Filing: 20th day after year end

It’s crucial to adhere to the assigned schedule to avoid penalties.

How does Alabama determine the sales tax filing frequency for my business?

The Alabama Department of Revenue will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently.

Generally, sales tax in Alabama is due monthly, with returns and remittances to be filed on or before 20th of next month. You may request quarterly filing status if your annual tax liability is less than $1,200. You may request annual filing status if the tax liability for the year is less than $600.

Are there any benefits if a business files Alabama sales tax on time?

A discount is allowed if the tax is paid before the 20th day of the month in which the tax is due. The sales tax discount consists of 5% on the first $100 of tax due, and 2% of all tax over $100. Please note, however, that the monthly discount may not exceed $400.

What penalty is applicable if a business fails to file Alabama sales tax?

Penalties are applicable if a business fails to file and pay sales tax before the due date in Alabama. For delinquent returns, the late fees amount to 10% of the tax required to be paid or $50, whichever is greater. In the case of late payments, a penalty of 10% of the tax is required to be paid. More details about this can be found here.

What are the key things to remember while filing sales tax in Alabama?

While filing taxes in Alabama, businesses must remember to account for sales tax holidays and potential tax discounts. Sales tax holidays offer temporary tax exemptions on specific items, and tax discounts may be available for timely filings during the reporting period. Staying updated on these can maximize compliance efficiency.

What is the sales tax on shipping in Alabama?

Shipping charges are generally taxable if the seller uses owned or leased vehicle, but will be exempt, if stated separately, when done through a common carrier. The tax rate aligns with the Alabama state sales tax rate applicable to the goods sold. Businesses should levy sales tax on shipping accurately for compliance. More details about this can be found here.

Let Galvix handle sales tax for you

Galvix provides an end-to-end sales tax management service, including nexus monitoring, tax calculations, and return filing, giving you the confidence and time to focus on what matters - your business.