Background
Alabama's sales and use tax statutes contain many items which give Alabama a definite advantage over other states. These statutes allow exemptions for specific organizations and commodities (see Section 40-23-et al, Code of Alabama 1975). Some of the more common items which are exempt include: gasoline, fertilizer and insecticides (when used for agricultural purposes), feed for livestock, wholesale sales, and sales to governmental entities. Additionally, there are four state rate differentials, which include: a 1-1/2% rate for manufacturing and farm machinery, a 2% rate for automotive vehicles, a 3% rate for food sold through vending machines, and a 4% general rate for all other items. Local governments may also impose a sales and/or use tax. The average state and local general tax rate is approximately 8%; the average state and local manufacturing machinery tax rate is approximately 2.75%. For specific local sales and use tax rates, see the Department's web site at www.ador.state.al.us.

Incentives

1. Abatements. The Tax Incentive Reform Act of 1992 (Chapter 9B of Title 40, Code of Alabama 1975) gives cities, counties, and public authorities the ability to abate: state sales and use taxes; and noneducational county and city sales and use taxes.

2. Vendor Discount. A discount is allowed if sales tax is timely paid. The discount is 5% on the first $100 of tax due and 2% of all tax over $100 and is limited to a total maximum of $400 per month regardless of the number of retail locations in the state.

3. Exemption for Raw Materials. Raw materials used by manufacturers or compounders as an ingredient or component part of their manufacturing or compounded product (Sections 40-23-1(a)(9)b. and 40-23-60(4)b., Code of Alabama 1975) are specifically exempt from sales and use taxation. Alabama Department of Revenue Regulations 810-6-1-.137 and 810-6-1-.80 address the raw materials exemption.

4. Sales and Use Tax Reciprocity. If a sales or use tax equal to or greater than the amount of Alabama tax is paid to another state, or any subdivision thereof, then the property which is subject to the tax is not taxable in Alabama (Sections 40-23-65 and 40-27-IV.1., Code of Alabama 1975). If the sales and use tax rate paid to the other state and its subdivisions is lower than Alabama's rate, then the taxpayer owes Alabama the difference between the tax calculated at the lower rate and Alabama's rate. In essence, the taxpayer actually gets a credit for sales and use tax paid to another state and its subdivisions. Please refer to Alabama Department of Revenue Regulation 810-6-5-.04 for more information.

5. Pollution Control Equipment. Equipment or materials purchased primarily for the control, reduction, or elimination of air or water pollution is exempt from sales and use tax (Sections 40-23-4(a)(16) and 40-23-62(18), Code of Alabama 1975). For further information, please refer to Alabama Department of Revenue Regulation 810-6-3-.46.

6. Exemption for Quality Control Testing and Donations to Charitable Entities. The withdrawal, use, or consumption of a manufactured product by the manufacturer thereof, for use in quality control testing or to be donated to certain charitable entities, shall not be subject to the state sales tax (Section 40-23-1(e), Code of Alabama 1975). For further information, please refer to Alabama Department of Revenue Regulation 810-6-1-.196.

7. Utility Gross Receipts Tax Exclusions. Within the area of utility gross receipts taxes, Alabama law (Sections 40-21-83 and 40-21-103, Code of Alabama 1975) allows exclusions from the utility gross receipts tax and the utility service use tax for utility services used in certain types of manufacturing and compounding processes. Alabama Department of Revenue Regulation 810-6-5-.26 provides more information on these exclusions.

8. Exclusion for Poultry Houses. The furnishing of natural gas or electricity for use or consumption as a fuel in and for the heating of poultry houses shall be exempt from the utility gross receipts tax (Section 40-21-83(9), Code of Alabama 1975).


Filing Requirements

Once a retail business registers with the Alabama Department of Revenue, it is assigned a sales and/or use tax number and receives its forms. Due Dates for Sales Tax – A taxpayer whose total

state sales tax liability averages less than two hundred dollars ($200) per month during the preceding calendar year may elect to file and pay state sales tax and state-administered local sales taxes on a calendar quarter basis. The election to file and pay quarterly must be made in writing to the Revenue Department no later than February 20 of each year in which the taxpayer wishes to file and pay taxes quarterly.

Quarterly returns and payments are due by the 20th of January, April, July, and October for the previous calendar quarter’s sales. A taxpayer whose total state sales tax liability during the preceding calendar year was ten dollars ($10) or less shall file and pay state sales tax and state administered local sales taxes annually. The annual return and payment is due by January 20th for the previous year’s sales. Taxpayers who do not qualify to report and pay taxes annually or do not qualify and elect to file and pay taxes quarterly must report and pay state sales tax and state-administered local sales taxes on a monthly basis. Monthly tax returns and payments are due by the 20th of each month for the previous month’s sales. Taxpayers with state sales tax accounts whose average monthly state sales tax liability was $1,000 or greater during the preceding calendar year must pay an estimated tax by the 20th day of the month in which the liability occurs. This estimated amount is the lesser of 2/3 of the taxpayer’s actual tax liability for the same calendar month of the preceding year or 2/3 of the current month’s estimated liability. To register or for more information, contact the:

     Alabama Department of Revenue
     Central Registration Unit
     P.O. Box 327001
     Montgomery, AL 36132-7001
     Telephone: 334-242-1170

In addition to the state sales and use tax, various cities and counties within Alabama also levy sales and use taxes. Presently, the Alabama Department of Revenue administers over 170 different city and county sales and use taxes, but the Department does not administer all local sales and use taxes. Therefore, it is advisable to first contact the Department or view our web site at www.ador.state.al.us under “Sales and Use Tax” to find out if the localities in which you plan to do business are administered by the Department. If you determine that you will do business in a selfadministering locality, you are responsible for contacting and registering with the local taxing authorities.