Privilege Tax in Alabama

April 13, 2006

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Beginning in 2000, Alabama's franchise tax was eliminated and replaced with the Alabama privilege tax. The privilege tax is imposed annually on all corporations, limited liability entities, and disregarded entities doing business in Alabama or organized under Alabama laws. Limited liability companies (LLCs) electing to be taxed as corporations for federal income tax also are subject to the Alabama privilege tax on corporations.

The tax accrues January 1 each tax year or from the date of eligibility to do business in Alabama. Taxpayers are liable for the privilege tax for each year beginning before dissolution or withdrawal or forfeiture of qualification to do business in the state.

The minimum privilege tax imposed is $100 and the maximum is generally $15,000 for 2001 and later years. The tax is based on a business's Alabama net worth at the following rates:

Taxable Income	Tax Rate per $1,000 of Net Worth
$0, but less than $1	$0.25
$1, but less than $200,000	$1.00
$200,000, but less than $500,000	$1.25
$500,000, but less than $2,500,000	$1.50
$2,500,000 and over	$1.75

Businesses must generally file Alabama Form PSA, Alabama Business Privilege Tax Return, Corporate Shares Tax Return, and Annual Return, within 2.5 months after the beginning of their tax year. For corporations filing on a calendar year basis, the return must be filed by March 15 of the current year. Limited liability entities filing on a calendar year basis must file a privilege tax return by April 15 of the current year.