Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for Alabama.

April 14, 2023

Alabama House of Representatives Approves Cut to Income Tax Rates

Authored by: Brandon Vance and Bonnie Susmano, JD, MBA

On April 6, 2023, the Alabama House of Representatives unanimously passed H.B. 115 and 116. If fully enacted, these Bills will eliminate the State’s lowest income tax bracket and will gradually reduce the top tax bracket. If enacted, the Bills will reduce the State’s top 5% tax bracket to 4.95% in annual 0.01% increments beginning in 2024. Additionally, H.B. 116 will exempt the first $500 of income for single filers or $1,000 for married filers. Presently, the state imposes a 2% income tax the first $500 of income for single filers or $1,000 for married filers.

November 11, 2022

Alabama Department of Revenue Issues Guidance on Severe Weather Preparedness Sales Tax Holiday

Authored by: Brandon Vance and George Gonzales, MST

On November 4, 2022, the Alabama Department of Revenue provided an updated list of counties and municipalities that have chosen to participate (or not participate) in the State’s upcoming severe weather preparedness sales tax holiday. As a “home-rule” state, Alabama Sales Taxes are administered at the local level – and this includes whether to participate in the State’s sales tax holiday. The Sales Tax Holiday will begin on February 24, 2023, and end on February 26, 2023. For the full list of localities participating in the Sales Tax Holiday please see the Alabama Department of Revenues’ Website.

October 14, 2022

Alabama Temporarily Suspends Terminal Excise Tax Requirements in Response to Hurricane Ian

Authored by: Jessie Racioppi

Pursuant to an executive order issued by Alabama Department of Revenue Commissioner Vernon Barnett on September 28, 2022, motor fuel exporter, importer, and transporter licensing requirements have been waived until October 28, 2022. The executive order does not waive any other Terminal Excise Tax requirements. Entities are still expected to collect and remit excise tax. The Order was issued to help expedite Hurricane Ian relief efforts.

August 19, 2022

Alabama DOR Releases Form ST-6, Petition for Refund of Sales Taxes Paid to Seller

Authored by: Kevan Koopaei, CPA and Brandon Spinella

On August 1, the Alabama Department of Revenue issued Form ST-6. The purpose of the form is to allow purchasers to directly petition the Department for a refund on sales taxes paid directly to a seller. For example, a taxpayer that was charged, and paid, sales tax on an exempt purchase may now use Form ST-6 to claim a refund directly from the Department. To complete this form, the purchaser must provide a signature, proper documentation, and the correct designation as to the type of tax they want refunded. This form will need to be filled out for each tax type separately. The tax types for which Form ST-6 may be used include sales and use, and excise tax.

October 21, 2021

Alabama – Exemption for privately owned educational institutions

Effective October 15, 2021, Alabama adopted a new ruling which exempts certain privately owned educational institutions from sales and use tax on their purchases. The new ruling defines that the following are not considered privately owned educations institutions for the purposes of exemption:

  1. Nurseries, daycare centers, and/or home schools; and,
  2. Institutions at which courses of study are limited to specialized subjects such as dancing, riding, music, cooking, sewing, and welding.

When an educational institution conducts both exempt and non-exempt activities, separate purchases records must be kept substantiating the exemption is only claimed on purchases related to exempt activities. For example, if a private school operates both a kindergarten and nursery school, it will need to maintain separate records substantiating that the purchases for the kindergarten were exempt and purchases for the nursery remain subject to tax. If the institution does not maintain separate records substantiating that it is paying sales tax or remitting use tax on its taxable activities, it will remain subject to sales/use tax on all of its purchases.

August 26, 2021

Alabama – Foreign Information Technology Services Not Subject to Tax

The Alabama Department of Revenue recently ruled that a foreign company is not liable for sales tax on an information technology service provided to a company located within Alabama if the nontaxable services are separately itemized on the invoice and do not involve the transfer of software. Moreover, the business must provide its services remotely and have no physical presence in the United States. Training, programming, software maintenance, and testing are examples of services that were determined nontaxable even if provided for the software or with any software provided if separately itemized. (Alabama Revenue Ruling No. 2021-001, 2/23/2021.)

April 28, 2021

Localities Added to List of Participants in Alabama “Back-to-School” Sales Tax Holiday

Beginning in 2006, a sales tax holiday was enacted whereby no state sales or use tax is due on covered items as defined in Alabama tax law for the period beginning the third full weekend of July (starting at 12:01AM on the third Friday in July) and ending at twelve midnight the following Sunday. The following localities have informed the Alabama Department of Revenue that they will participate in the 2021 back-to-school sales tax holiday being held from July 16 to July 18: Argo, Athens, Crenshaw County, Cuba, Cullman, Eva, Florala, Myrtlewood, Pickensville, Thomaston, and Valley. The following localities have informed the Department that they will not participate in this year’s sales tax holiday: Baker Hill, Cordova, Cusseta, Deatsville, Heath, Langston, Lockhart, Louisville, Lynn, Mentone, Riverview, Walnut Grove, and Waverly.

March 23, 2021

Alabama Update on Extension of Filing Deadline

The Alabama Department of Revenue (Department) has issued a notice to taxpayers in response to the IRS issuance, on March 17, 2021, of IR-2021- 59, which provides for an automatic extension of the filing and payment due date for federal individual income tax returns for the 2020 tax year from April 15, 2021, to May 17, 2021. The Department notes that Alabama provides for an automatic extension of up to six months to file Alabama income tax returns whenever there is a corresponding federal extension. Consequently, Alabama taxpayers will not need to request an extension to file Alabama individual income tax returns without a late-filing penalty through the extended Federal due date (i.e., May 17, 2021). Regarding the payments of Alabama income tax for the 2020 tax year, which are due on April 15, 2021, the Department will automatically waive, without request, late-payment penalties for payments remitted by May 17, 2021. However, the Department is not authorized to waive interest, and any interest accruing from April 15, 2021, through the actual payment date will be due. The Department also reminds taxpayers that the IRS relief does not apply to estimated tax payments that are due on and still must be paid by April 15, 2021. ( Notice, Ala. Dept. Rev., 03/18/2021 .)

March 9, 2021

Alabama Grants Use Tax Refund Request on Materials Stored In-State for Out-of-State Use

The taxpayer at issue furnished and installed protective custom curtain walls on the exterior of buildings. Materials used in such projects were shipped and stored at the taxpayer’s facility in Alabama before ultimately being routed to out-of-state job site locations. The City of Bessemer (and the State of Alabama, generally) imposes use tax on tangible personal property purchased at retail “for storage, use, or other consumption” within the City.” However, an exemption exists for property temporarily stored in the city/state for use outside the state. The Taxpayer’s use tax refund requests were granted because the company’s intent to use those materials outside of Alabama was supported by purchase orders, invoices, and the fact that the materials in question were segregated for the out-of-state jobs.

February 18, 2021

Alabama Switches to Single Sales Factor Apportionment Formula, Amid Other Tax Changes

Information: – trending keywords – hashtags – etc.*: Alabama Switches to Single Sales Factor Apportionment Formula, Amid Other Tax Changes
Effective for tax years beginning on or after January 1, 2021 (see House Bill 170, enacted 02/12/21), all business income must be apportioned to Alabama using a single sales factor. This means when completing a business’s Alabama tax return, the taxpayer’s total business income will multiplied by a fraction; the numerator of which is the business’s sales in Alabama, and the denominator of which is the business’s sales everywhere. Alabama’s prior apportionment formula generally used double weighted sales factor apportionment.

Sales of tangible personal property are generally sourced to Alabama if the property is delivered or shipped to a purchaser within the State, and receipts from services or intangible property will generally be sourced using a market-based method (a reasonable approximation method may be used when a state of assignment cannot be determined via market-based sourcing).

Alabama’s “throwback rule” with respect to sales of tangible personal property was also repealed effective January 1, 2021 as part of House Bill 170. There may be special rules that apply to taxpayers selling tangible personal property to the Federal Government.
If you have questions about doing business in Alabama, or you or your clients are making sales to the Federal Government in the State, please reach out to Withum’s SALT team.

March 23, 2020

State Income Tax Filing Extended

Governor Kay Ivey and the Alabama Department of Revenue announced today that the state income tax filing due date is extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer state income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers. Other taxes included in the deadline extension are corporate income tax, the Financial Institution Excise Tax (FIET), and the Business Privilege Tax (BPT). Taxpayers do not need to file any additional forms or call the Alabama Department of Revenue to qualify for this automatic state tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension through the usual methods.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.

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The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.