In brief: sales and use taxes in the USA (Alabama)

Sales and use taxes

What goods are subject to sales and use tax in your state (at both state and local level)?

Alabama imposes its sales and use tax on the sale at retail, or the storage, use or other consumption, respectively, of tangible personal property. See Ala. Code §40-23-2; Legislator’s Guide to Alabama Taxes. Additionally, the state and local governments also impose an “amusement tax”—a form of sales tax on services—on charges for access to or the use of places of amusement or entertainment, billiard and pool rooms, bowling alleys, amusement devices, theaters, opera houses, athletic contests, golf courses. etc. that are open to the public. See Ala. Code §40-23-2(2). The same items are subject to (or exempt from) sales or use tax at the local level. Ala. Code §11-51-200.

What is the state sales tax rate?

The state tax rate for both sales and use tax is generally 4 per cent, although there are reduced rates for the sale or use of certain types of machinery (known as the “machine rate”), linen services, and certain automotive vehicles, truck trailers, semi-trailers or house trailers. See Ala. Code §40-23-2; Legislator’s Guide to Alabama Taxes.

What is the range of local sales tax rates levied in your state?

Local sales and use tax rates range widely from 0.5 per cent to 5 per cent so that the cumulative state/county/municipal tax is often in the 9 to 10 per cent range for most items. 9 per cent is the current average tax rate. In most larger and many medium-sized municipalities, the cumulative tax rate is now 10 per cent.

What goods are exempt from sales and use tax?

In addition to tangible personal property sold to a state-licensed retailer, otherwise termed wholesale sales or sales-for-resale, most services are also exempt, provided they are separately identifiable on the invoice or bill of sale and on the seller’s books and records. Legislator’s Guide to Alabama Taxes. The amusement tax mentioned above is the major exception to this general rule. And even though items affixed to real estate are not considered tangible personal property, sales of these items to contractors, who in turn affix them to real estate, are taxable to the contractor except for certain “government projects” with the appropriate documentation. See Ala. Code §40-9-14.1. Unlike in almost all other states, food is not exempt nor does it receive a reduced sales tax rate.

Are any services taxed?

At present the only identifiable services taxed by Alabama are the services or places of amusement subject to the so-called amusement tax. However, there have been efforts both by the Alabama legislature and the ADOR to expand that base to include, among other items, charges for digital goods and services. Recently, the Alabama Supreme Court stepped into the fray and decreed that customized computer software is classified as tangible personal property and therefore taxable. See Russell County Community Hospital LLC vs. ADOR, Case No. 1180204 (Ala. 2019). The ADOR used that ruling as an opportunity to attempt to broaden the scope of its regulation specifying which items, traditionally considered intangible in nature, are now subject to sales and use tax, but amended the regulation in its final form to limit the expansion to solely customized computer software. (The authors’ firm was involved in the successful effort to limit the scope of that regulation, if further information is needed.)

What filing requirements and procedures apply?

As mentioned above, both state and local sales and use tax returns are due to be filed by the 20th day of the month following the month of the sale or taxable use of the item. Ala. Code § 40-23-7(a).  However, there are exceptions allowing either quarterly or annual filing if certain sales thresholds are not exceeded. In recent years both the ADOR and the local governments have focused on paperless/electronic filing. Through the ADOR’s so-called “ONE SPOT” filing portal, all sales, use, rental and lodging tax returns—for both the state and all local governments—can be filed electronically and remittance made. Not to be outdone, however, the state’s largest private auditing firm, now known as Avenu Insights and Analytics (formerly Revenue Discovery Services or RDS) encourages taxpayers to file through its portal with respect to the approximately 300 Alabama municipalities and counties it represents. The taxpayer retains the option. See its website: www.revds.com.