Alabama Sales Tax Exemptions


Alabama levies a 4% state sales tax on all purchases of tangible personal property unless the transaction is specifically exempted. There are more than 200 city and county sales taxes imposed in addition to the 4% state sales tax rate. Alabama’s range of sales tax rates is between 4% and 11%.

The consumers use tax is imposed on tangible personal property brought into Alabama for storage, use, or consumption in the state when the seller did not collect seller’s use tax on the sale of the property. The tax rates due are the same rates as for sales tax. Returns are to be filed on or before the 20th day of the month following the month in which the purchases were made. For example, purchases made in the month of January should be reported to the state of Alabama on or before February 20th. For more information on Alabama sales tax exemptions please visit the sites shown below.

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What is Exempt From Sales Tax in Alabama?

alabama sales tax exemption healthcare

Alabama Sales Tax Exemptions for Healthcare

Alabama sales tax law applying to hospitals and other entities within the healthcare industry essentially bifurcates these facilities into two distinct groups for purposes of taxability. Any entity whose name appears on the list of public hospitals or specifically named charitable organizations in Alabama Rule 810-6-3-.07.05 is entitled to purchase all items and materials tax exempt. For entities not specifically named in that list, nearly all purchases are subject to tax because the Alabama Department of Revenue considers the hospital, physician’s clinic or other healthcare entity to be the consumer of all items purchased and used in providing healthcare services to its patients.

 

One of the few exemptions afforded to these private healthcare entities not listed in Alabama Rule 810-6-3-.07.05 are drugs as defined in Alabama Code §40-23-4.1. Alabama defines the term drug as “any medicine prescribed…for human consumption or intake.” For more information about what items not traditionally considered to be “drugs” will qualify for this sales tax exemption, please see the Research Bulletin written by our sales tax consultants about Alabama’s Absorbable Medicines Sales Tax Exemption.

An exemption pioneered by Agile’s sales tax consultants relates to the purchase of implants. We fought for the correct application of Section 40-9-30, Code of Alabama and then worked hand-in-hand with Alabama Department of Revenue and local taxing authorities to develop procedures to enable Alabama hospitals and surgery centers to take advantage of this Alabama sales and use tax exemption. If you are an Alabama hospital or ambulatory surgery center that is acquiring implants for patients and paying sales or use tax on those purchases, Agile Consulting Group can help you recover sales and use taxes paid on such purchases from the prior 36 months. Read more details about this opportunity in our research bulletin about this Alabama medical sales tax exemption for implants.


Alabama Sales Tax Exemptions for Manufacturers

Alabama offers a reduced machine rate for Alabama manufacturers. Qualifying items vary at the state, county and city levels which make it a challenge for taxpayers to truly maximize the benefit of the sales tax exemption they’re entitled to claim. Also, some local jurisdictions offer the reduced machine rate while others do not.


Because many local jurisdictions in Alabama administer their own sales and use taxes, pursuing refunds for overpayments of Alabama sales and use taxes is more difficult and requires more effort than states who administer all taxes at the state level. In Alabama, sales and use tax refund claims often need to be filed with each distinct jurisdiction rather than as a consolidated refund claim. 

alabama sales tax exemption manufacturers

Examples of some items which qualify for Alabama’s reduced machine rate at the state level and in most jurisdictions include: production machinery purchases, repair parts and labor to production machinery and equipment, and consumables including lubricants and fuel. Items which become part of the finished product for resale also qualify for a complete exemption from Alabama sales and use tax both at the state and local levels. Our sales tax consultants have a track record of helping Alabama manufacturers discover additional opportunities for savings as a result of the years of experience we have working with the state and local taxing authorities.

alabama sales tax exemptions software

Alabama Sales Tax Exemptions on Software

Agile believed that per the definition provided in Section 5 of Alabama Rule 810-6-1-.37 canned software that is adjusted to the specifications or requirements of a specific purchaser becomes non-taxable custom software. Agile also cited the ruling in AL HealthSouth Corporation v. State of AL Dept. of Revenue, 8/10/2006 in which HealthSouth’s purchases of canned software that was adjusted to fit HealthSouth’s needs was determined to be exempt custom software.

Chief Tax Tribunal Judge Bill Thompson agreed with Agile’s position in his ruling stating that “only unmodified computer software sold to nonexempt customers” is subject to Alabama sales or use tax. As a result of this victory by Agile Consulting Group’s sales tax consultants, taxpayers can feel confident claiming an Alabama sales tax exemption on software purchases which have any degree of adjustment or configuration.

In Russell County Community Hospital & Medhost of Tennessee, Inc. v. State of Alabama Department of Revenue, Agile’s sales tax consultants filed an appeal with the Alabama Tax Tribunal in June of 2016 after sales tax refund claims related to software purchases were denied.

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Sales Tax Compliance FAQs

Sales tax compliance can be intimidating, but it doesn't have to be!

  • Do I have to charge sales tax?

    You do if your business is considered to be "doing business" within a state. The Supreme Court ruling in SD v. Wayfair on June 21, 2018 changed the standard by which this was determined. Now, if your business has a sufficient volume or revenues or transactions within a state, you have established nexus within that state. Nexus means you have to charge sales tax to your customers within that state.

  • How do we know if we have sales tax nexus in a state?

    Agile will complete a sales tax nexus study to determine in which states you have met or exceeded the nexus thresholds. All we need are your: a) physical locations, and; b) prior years sales records to analyze both revenues and transaction counts per state.

  • How do I know what sales tax rate to charge?

    Don't try to reinvent the wheel. There are a number of excellent sales tax rate software solutions in the marketplace and we are partners with ALL of them. Ask us for our input on which would be the best choice for your business and we'll gladly guide you and provide an introduction to one (or several options) available in the marketplace.

  • Are my products or services subject to sales tax?

    Well, the answer like most everything is sales tax is, "it depends," because each state drafts its own laws and they vary widely from state-to-state. A sales tax consulting firm, such as Agile, should perform a taxability study on the products and services your business sells in any states where you have nexus to determine whether you should be collecting sales tax on your sales of those products or services.

  • Which sales tax software is best for my business?

    There are a number of excellent choices in the sales tax software space. We are a sales tax consulting partner with ALL the available options in the marketplace. Leverage our years worth of firsthand experience with these options to help guide you to the best choice for your business.

  • How do I register for sales tax with a state?

    Agile can do this for you. Most states require the same information to process a registration. Things like: legal entity name, FEIN #, date of incorporation, etc. All states require the names, date-of-birth and social security numbers of officers. Some states will even require a copy of an officer's driver's license.

  • Should we register or file a voluntary disclosure agreement ("VDA")?

    Completing a registration will allow your business to begin collecting taxes going forward. If you have taxes from prior periods to disclose, a VDA will enable you to do so with the added benefit of the penalties being waived.

  • How do states determine your filing frequency?


    Your assigned filing frequency depends on the volume of transactions you have within a state. Many states will ask about your expected volume of sales during the registration (or VDA) process. Some other states will initially default your account to monthly filings. All states will re-evaluate your filing frequency on an annual basis.

  • Will Agile handle any notices and communications received from the state(s)?

    Yes! We will absolutely handle all notices and communications you receive from the state(s) regarding sales and use tax. We provide a comprehensive, turnkey solution to outsource your sales and use tax issues.

  • How do I determine my taxable sales?

    Determining taxable sales is the first, and most important step in determining your monthly sales tax filing obligations. Sales tax software, if properly configured, can solve or at least simplify this process. Combine that with an accurate matrix classifying your products or services taxability, and this becomes a cinch! 

Find the sales tax exemptions for your state

Select any state in the map below to view all relevant sales and use tax information available for that state.

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