Sales and Use Taxes in Alabama

April 13, 2006

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In Alabama, a license tax is imposed on retailers of tangible personal property and selected services; operators of places of amusement and entertainment; persons selling new and used automotive vehicles, truck trailers, or semitrailers; persons or firms selling food products through vending machines; and on sales of farm equipment. A tax is also imposed on each person in the business of leasing or renting tangible personal property.

Sales and use tax rate. The Alabama sales and use tax rate ranges from 1.5 percent to 5 percent. (In addition, make sure to contact your local governments in Alabama because they are allowed to assess a local sales and use tax.) Generally, taxable items are taxed at a 4 percent sales tax rate. The rates vary as follows for specific items and leases or rentals:

2 percent. The sales tax rate is 2 percent on automotive vehicles, house trailers, truck trailers, semitrailers, mobile home set-up materials and supplies, and mobile homes purchased other than at wholesale. This 2 percent sales tax rate includes casual sales of the above items.
1.5 percent. The sales tax rate is 1.5 percent on farm machinery and equipment, and machines and their parts used in mining, quarrying, processing, compounding and manufacturing.
3 percent. The sales tax rate is 3 percent on sales of food through coin-operated vending machines (but not including beverages other than coffee, milk, and milk products).
5 percent. The sale tax rate is 5 percent on persons in the business of contracting to construct, reconstruct or build any public highway, road, bridge, or street.
Leasing and renting percentages. The tax on rentals or leases is 4 percent except that leases or rentals of any automotive vehicle or truck trailer, semitrailer or house trailer are taxed at 1.5 percent and the tax on leasing or renting linens and garments is 2 percent.

Tax-exempt items. Alabama has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt. You'll want to check and see if any items you sell are exempt from the sales tax.

Responsibility for paying sales tax. The consumer is responsible for paying the sales tax, however, the tax is collected from the retailer for convenience sake. The retailer is required to give each purchaser a receipt that includes the following list of information:

name and place of business
name and address of purchaser
description of property sold
date of sale
sale price
amount of tax collected
seller's license or authority number

Use tax. Use tax is a tax on use, storage, or consumption in Alabama provided that sales tax has not already been paid. The tax remains a liability of the purchaser until paid, unless the purchaser has a receipt showing payment of the tax to the retailer.

Responsibility for collecting use tax. Retailers are responsible for collecting the use tax on use, storage, or consumption in Alabama provided that sales tax has not already been paid. The tax remains a liability of the purchaser until paid, unless the purchaser has a receipt showing payment of the tax to the retailer. Retailers who pay the tax are required to give receipts to the purchasers. It is presumed that all tangible personal property sold for delivery in the state is for storage, use, or consumption in Alabama unless evidence is available that the sale was for resale.

Obtaining tax permits in Alabama. Your business must obtain an annual license from the Department of Revenue, if you are subject to sales tax. ( This includes businesses engaged in leasing or rental.) You do not have to pay a fee for a tax permit in Alabama.

Leases. Leases are subject to sales and use tax at the same rate as if the item is sold. Leasing or rental is a transaction where property is used by other than the owner for a consideration without transfer of title to the property. Lease-sale contracts in which ownership of the property is transferred to the lessee upon completion of the payments, are treated as sales rather than rentals.

The following discussions address additional sales and use tax issues that many small business owners face: