Continuing our state-by-state sales tax posts, we turn to the Alabama. In this post I’ll take you through the most common scenarios we see with our customers who are online sellers trying to do the right thing when it comes to sales tax.
Hopefully this post will give you a better idea of when you’re required to collect sales tax in Alabama and how much to collect. If your business doesn’t fit into any of the following scenarios, do yourself a favor and contact a tax professional and get some guidance.
Online sellers living out-of-state but using a fulfillment service
Here’s a scenario that is becoming more and more common these days. Competition to sell your wares online is increasing. One of the best ways to differentiate your business is to have faster shipping times. Thus, the increase usage of third-party fulfillment companies that warehouse and ship your inventory. Customers aren’t the only ones that love this. So, too, do the states. They see your inventory as nexus – a presence in the state that’s enough to require your business to register and collect sales tax. Alabama is no exception.
Here’s the language from Alabama’s Department of Revenue showing that out-out-state sellers need to comply:
Collecting sales tax in Alabama
Alabama is a destination-based sales tax state. The amount of sales tax you’re required to collect
is the sum of the state sales tax rate (4 percent as I write this) plus any applicable local sales tax rates (city, county, or other taxes tacked on) in the location where the item is being shipped. So it doesn’t matter where you and your business is located. What matters is where the shipment is being sent.
Let’s say you live and operate your online business in Birmingham and sell a taxable item that needs to be shipped in-state to Huntsville. According to the state. the sales tax rate that should be charged is 8 percent (4 percent state + 3.5 percent Huntsville rate + 0.5 percent Madison County rate).
Now let’s say you live and operate your online business in Las Vegas and warehouse and ship your inventory via a fulfillment service located in Alabama. You sell a taxable item that needs to be shipped from the warehouse to a customer in Georgiana. According to the state. the sales tax rate that should be charged is 9.5 percent (4 percent state + 4 percent Butler County rate + 4.0 percent Georgiana rate).
Summary: if your business has nexus, collect based on shipping address
Let’s talk about your experience selling in Alabama in the discussion section below. If you have any other sales tax thoughts or questions, come join the conversation over at www.salestaxcommunity.com .