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Learn the fundamentals of sales tax
Do you need to collect sales tax in Alabama?
You’ll need to collect sales tax in Alabama if you have nexus there. There are two ways that sellers can be tied to a state when it comes to nexus: physical or economic. Physical nexus means having enough tangible presence or activity in a state to merit paying sales tax in that state. Economic nexus means passing a states’ economic threshold for total revenue or the number of transactions in that state.
Do you have physical nexus in Alabama?
Alabama considers a seller to have physical nexus if you have any of the following in the state:
- An office or place of business such as a retail store
- A warehouse or inventory stored in the state
- Regular presence of traveling salespeople or other agents
- Remote entity nexus
You can click here to read exactly what the Alabama Department of Revenue (Alabama’s taxing authority) has to say about what constitutes sales tax nexus in Alabama.
Do you have economic nexus in Alabama?
Effective January 1, 2016, Alabama considers vendors who make more than $250,000 in sales annually in the state to have economic nexus. This means the state considers these vendors obligated to collect sales tax from buyers in the state. You can read Alabama’s economic nexus guidance for sellers here and you can read more about economic nexus in every state here.
Is what you’re selling taxable?
If you’ve discovered you have sales tax nexus in Alabama, your next step is to determine if what you’re selling is taxable.
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.
Tangible personal property is generally taxable in Alabama, with a few exceptions for items used in agriculture or industry.
If you have sales tax nexus in Alabama and your products are taxable, your next step is to register for a sales tax permit.
Is SaaS taxable in Alabama?
SaaS is considered a taxable service. Computer software is tangible personal property. (Source)
How to get a sales tax permit in Alabama
You can register online at My Alabama Taxes (MAT).
What information do you need to register for a sales tax permit in Alabama?
- Personal identification info (SSN, address, etc.)
- Business identification info (EIN, address, etc.)
- Business entity type
- Date started doing business in Alabama
- County you’d like to collect local tax in (if applicable)
- Copy of form 8832 (if elected to be taxed as a corporation or partnership)
- Nexus triggering activities
It’s free to apply for a sales tax permit, but other business registration fees may apply.
How to Collect Sales Tax in Alabama
Alabama is a destination-based sales tax state. This means that if you are based in Alabama and sell to a buyer in Alabama you should always collect sales tax at the rate of that buyer’s ship to location. The state sales tax rate in Alabama is 4%. Alabama does have local sales tax rates as well so check which sales tax rate you should be using with the TaxJar sales tax calculator.
If you are not based in Alabama, but have sales tax nexus in Alabama you are considered an Alabama “remote seller.” This is where things get tricker, since remote sellers are required to collect “use tax,” which can vary slightly from Alabama sales tax rates. If you’re running into this problem as an online seller, no worries! TaxJar SmartCalcs will make sure you collect the right rate every time. (And if you sell on a platform like Amazon, their sales tax engine ensures you collect the right rate, too!)
Should you collect sales tax on shipping charges in Alabama?
As long as you separately state the shipping charges on your bill to your customer, you do not have to charge sales tax on shipping in Alabama.
But if you include shipping in the price of the product you sell the customer, then shipping is considered part of the taxable transaction and Alabama declares that you must collect sales tax on shipping.
Read a full explanation of sales tax on shipping in Alabama here.
When are Returns Due?
When you file and pay Alabama sales tax depends on two things: your assigned filing frequency and your state’s due dates.
How often will you file sales tax returns in Alabama?
States assign you a filing frequency when you register for your sales tax permit. In most states, how often you file sales tax is based on the amount of sales tax you collect from buyers in the state.
In Alabama, you will be required to file and remit sales tax either monthly, quarterly or annually.
Alabama sales tax returns are always due the 20th of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax is generally due the next business day.
Filing Sales Tax
When it comes time to file sales tax in Alabama you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- Make a payment
How to Calculate How Much Sales Tax You Owe in Alabama
Calculating how much sales tax you should remit to the state of Alabama is easy with TaxJar’s Alabama sales tax report.
All you do is connect the channels through which you sell – including Amazon, eBay, Shopify, Square and more – and we’ll calculate exactly how much sales tax you collected. All the information you need to file your Alabama sales tax return will be waiting for you in TaxJar. Start your 30-day free TaxJar trial now!
How to File and Pay Sales Tax in Alabama
The Alabama Department of Revenue requires that online sellers file sales tax online. You can file My Alabama Taxes.
If you are remitting more than $750 in one payment, Alabama requires you to pay via electronic funds transfer (EFT) through My Alabama Taxes ONE SPOT.
Note: If paying by EFT Alabama requires that the funds must be transmitted on or before 4pm CT on the day that sales tax is due or be considered late.
But if you are remitting less than $750 and want to pay by mail, just mail your check to this address:
Alabama Department of Revenue Sales & Use Tax Division P. O. Box 327790 Montgomery, AL 36132-7790