This blog was last updated on May 18, 2023
For fully remote sellers, sales tax compliance in Alabama can feel daunting. However, just prior to Wayfair, Alabama created the Simplified Sellers Use Tax system. Today, remote sellers with economic nexus in Alabama can apply to participate. Once accepted, their transactions become subject to a special flat rate (currently 8%), which represents an amalgam of state and local taxes. Regardless of destination locality, transactions are subject to the same flat rate. By opting to collect and remit at the flat rate, they do not need to worry about special local filing or the complex local rate structure. If the flat rate happens to be greater than the rate their purchaser would otherwise pay, the purchaser may apply for a refund or credit from the state. This is truly a meaningful simplification.
However, sales tax compliance in Alabama can also be complex. Local tax applies at the county, city and district levels, with special rates applying in “police jurisdictions,” which are locations just outside city limits where limited city services apply, but police protection is provided. On top of that, localities can change their tax rates at any time. Tracking local rate changes across all Alabama localities can be a challenging task on its own, especially for an out-of-state seller. To further complicate matters, localities are fully empowered to adopt special rates for product and service categories such as agriculture, manufacturing, auto rental, linen rentals, general rentals, lodging and vending.
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