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Alabama Sales Tax 2022 for Businesses: A Complete Guide

“The statewide sales tax for businesses in Alabama is 4%”

What Does The Alabama Sales Tax For Businesses Mean?

On the sale of certain products and services, a sales tax is paid to a governing authority (state or local). Alabama enacted its first general state sales tax in 1936, and the rate has since climbed to 4%. In addition to the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range from 0% to 7%. Combined sales tax rates in Alabama currently range from 4% to 11%, depending on the region of the sale.

When you offer taxable products or services, you function as an agent for the state of Alabama, collecting tax from customers and remitting it to the proper tax authorities. The Alabama Department of Revenue is in charge of collecting sales and use taxes (DOR).

How Much Is The Alabama Sales Tax For Businesses?

Alabama has a 4% statewide sales tax that has been in existence since 1936.

Municipal governments in Alabama can also levy a local-option sales tax, which can range from 0% to 8.5 percent across the state, with an average local tax of 5.074 percent (for a total of 9.074 percent when combined with the state sales tax). According to Alabama law, the maximum local tax rate is 7%.

Alabama Sales Tax  Threshold Limit
4% $250,000 economic sales threshold limit

Do You Need To Collect Alabama Sales Tax For Your Ecommerce Business?

If you have a nexus in Alabama, you must collect sales tax. When it comes to nexus, vendors can be physically or economically related to a state. Physical nexus refers to having sufficient tangible presence or activity in a state to justify paying sales tax there. Economic nexus is defined as exceeding a state’s economic threshold for total income or number of transactions.

Therefore, this is what the Alabama sales tax for business is all about. Now, the question arises: what types of goods and services are taxable under Alabama sales tax? Let’s see.

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By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.

What Types Of Goods And Services Are Taxable Under Alabama Sales Tax?

Transaction

Sales tax must be collected from all tangible, physical objects sold to consumers in Alabama. Items designed for use in agricultural pursuits or industry, for example, are exempt from this tax.

This means that although someone selling books in Alabama is compelled to charge sales tax, someone selling farm equipment is not.

Services

In most cases, the state of Alabama does not collect sales taxes on the vast majority of services rendered. Manufacturing or creating a product is an example of taxable services.

This means that a freelance accountant is exempt from collecting sales tax, whereas someone working in the clothes industry may be obligated to do so. The following table shows the taxable goods and services in Alabama.

Goods & Services Taxability
clothing 4%
Groceries 4%
Prepared Food 4%
Prescription Drugs Exempt
OTC Drugs 4%

Therefore, if you are dealing in any of these goods and services, you are subject to pay business sales tax in Alabama. Now. let’s move on to see the tax collection and tax filing procedure for Alabama sales tax.

Read More: Florida Sales Tax 2022 for Business: A Complete Guide

Tax Collection

The sale of tangible items and some services in Alabama is subject to sales tax. The vendor is responsible for collecting the tax and remitting it to the state tax authorities. De facto, the vendor is a collector.

Start by completing the following three questions to see if you need to collect sales tax in Alabama:

  • Have you established a nexus in Alabama?
  • Are you selling Alabama citizens taxed products or services?
  • Do your customers have to pay sales tax?

If you answered yes to all three questions, you must register with the state tax authorities, collect the correct amount of sales tax per transaction, file returns, and remit to the state.

If you meet the requirements for collecting sales tax but choose not to, you will be held liable for the tax due, as well as any penalties and interest that may apply.

It’s critical to set up tax collection at the point of sale because collecting sales tax from customers after a transaction is complete is very difficult.

Tax Filing

You must remit sales tax to the Alabama Department of Revenue by a specific date after collecting it. After that, the Alabama Department of Revenue will disperse it as needed.

The procedure of filing an Alabama sales tax return consists of submitting the appropriate sales data (filing a report) and remitting the collected tax dollars (if any) to the Alabama Department of Revenue (DOR). You must identify your total sales in the state, the amount of sales tax received, and the location of each sale as part of the filing procedure.

How often do you need to file sales tax in Alabama?

You will be assigned a filing frequency by the Alabama Department of Revenue. The number or volume of your company’s sales is frequently used to characterize this. State governments often demand larger businesses to file more frequently. Both returns and payments for Alabama sales taxes must be submitted at the same time and have the same due date.

Additionally, you can file with the Alabama DOR directly by visiting their website and manually entering your transaction details. Although this is a free service, preparing Alabama sales tax returns takes time, especially for bigger businesses.

What If You Don’t File Your Tax Return By The Due Date?

The Alabama Department of Revenue has assigned your firm a filing frequency, and it’s critical that you understand the due dates associated with that frequency. You’ll be prepared and able to plan accordingly. Late fines and interest may apply if you fail to file by the deadline.

All sales tax filings must be completed by the 20th of the month following the tax period, according to the Alabama Department of Revenue. For your convenience, we’ve organized Alabama sales tax reporting deadlines by filing frequency. If a deadline falls on a weekend or holiday, it will be postponed for the next working day.

  • Quarterly Filing-  If the taxpayer owes less than $200 per month on average over the previous calendar year, they may file quarterly sales tax returns on or before the 20th of April, July, October, or January.
  • Annual Filing-  If a taxpayer owes less than $200 in sales tax in a given calendar year, they can choose to file their sales tax return annually.

Late Filing

If you file your Alabama sales tax return late, you may be charged a late filing penalty as well as interest on any unpaid taxes.

The Alabama DOR may give you an extension if you miss a sales tax filing deadline due to circumstances beyond your control (e.g., weather, accident). However, you may be compelled to submit proof to support your claim.

Penalty

Delinquent or late-filing penalties in Alabama are equivalent to 10% of the tax payable or $50, whichever is larger. Even if there is no tax owed for the tax period, the $50 late filing penalty applies. Even if there is “zero” tax to record, a company taxpayer is obligated to file a return for each tax quarter.

Need Assistance With Alabama Sales Tax

At Freecashflow.io, we help internet entrepreneurs with their tax and accounting concerns. We’ve worked with Warner Brothers, Ernst & Young, and Paramount Pictures, in addition to multibillion-dollar corporations. We can assist you with your taxes and accounting needs. Please contact us if you have any queries or issues.

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