Running a business in Alabama means keeping up with more than just your customers. It also means staying on top of sales tax. With state, county, and city taxes layered together, rates can vary significantly depending on where your business is located or where your customers are. It can get complicated fast, but understanding how Alabama sales tax works is essential to keeping your business compliant and avoiding penalties. Below, we’ve broken down everything you need to know, from rates and exemptions to due dates and discounts, plus how DAVO can take this off your plate entirely.
What is the sales tax rate in Alabama?
Alabama’s state sales tax rate is 4%. On top of that, most counties and cities add their own local taxes, which can make your total rate much higher.
Here are several examples of how state, county, and city taxes combine across Alabama:
- Huntsville (Madison County): City rate of 4.5% + County rate of 0.5% + State rate of 4% = 9.5% total
- Montgomery (Montgomery County): City rate of 3.5% + County rate of 2.5% + State rate of 4% = 10% total
- Birmingham (Jefferson County): City rate of 4% + County rate of 3% + State rate of 4% = 10% total
- Mobile (Mobile County): City rate of 4% + County rate of 1% + State rate of 4% = 9% total
- Tuscaloosa (Tuscaloosa County): City rate of 3% + County rate of 2% + State rate of 4% = 9% total
- Auburn (Lee County): City rate of 4% + County rate of 1% + State rate of 4% = 9% total
Not every county or city imposes a tax, but the majority do, meaning most businesses in Alabama collect well above the 4% base rate.
How to calculate sales tax in Alabama?
Calculating state sales tax on its own is pretty simple. You’ll need to multiply your total sales by 4%. However, things get more complicated once you factor in county and city rates, especially if your business has multiple locations. For example, the tax you collect in Birmingham won’t be the same as what you collect in Montgomery, even if the sale amount is identical.
Since Alabama is a destination-based state, tax is determined by the buyer’s location, not the seller’s. That means if you sell across multiple counties or cities, you’ll likely be charging different rates depending on where your customers live.
This can get tricky to manage manually, which is why many businesses turn to automation. A tool like DAVO can calculate, collect, and set aside sales tax for you, so you don’t have to worry about getting it wrong.
Use our sales tax calculator
Our sales tax calculator comes in handy to determine how much you owe. Here’s how to use it:
- If you only want to calculate your state sales tax, enter Alabama’s 4% rate along with your total sales. Example: A $1,000 sale at the statewide 4% rate = $40 in sales tax.
- To calculate your total sales tax, add together the state, county, and local tax rates for your area, then enter that combined rate with your total sales. Example: If you make a $1,000 sale in Birmingham, where the total tax rate is 10%, you would owe $100 in sales tax.
Are all goods taxable in Alabama?
Some goods are exempt from sales tax, such as prescription medication and gasoline. Visit the Alabama Department of Revenue’s website for a detailed list of exempt goods. While food and groceries are common items, they are not exempt from sales tax. However, sales tax on qualifying food and groceries was reduced to 2% from 3% on September 2, 2025.
Is there sales tax on restaurant food in Alabama?
Restaurant food is taxed at the full 4% state rate, plus county and city rates where applicable. The reduced grocery rate does not apply to food prepared for immediate consumption.
Does Alabama have sales tax on clothes?
For most of the year, clothing is fully taxable in Alabama. You’ll need to charge the 4% state rate plus any applicable county or local rates where the purchase is made. This applies to everyday clothing, back-to-school items, and even work uniforms.
However, don’t forget about Alabama’s annual sales tax holiday. Each summer (typically the third weekend in July), the state waives its 4% sales tax on qualifying back-to-school purchases, including clothing. Some local jurisdictions also participate, so double-check whether you should stop collecting local tax as well.
Are all services taxable in Alabama?
Unlike products, most services in Alabama are not subject to sales tax. That means if your business provides professional services like consulting, accounting, or haircuts, you generally don’t need to charge customers sales tax.
That said, there are important exceptions. Certain services, such as entertainment, leasing, and rental services (like linens or equipment), are taxable. And because Alabama’s tax laws can be tricky, it’s best not to assume your service is exempt.
As a business owner, your safest move is to check with the Alabama Department of Revenue for tax-exempt services before you decide not to collect sales tax. Misclassifying your service could leave you on the hook for back taxes, penalties, and interest.
Who pays sales tax?
Sales tax is collected by the seller but ultimately paid by the buyer. Businesses are required to add sales tax to the purchase price, collect it at the point of sale, and remit it to the state on time.
What is the business owner responsible for?
In Alabama, the responsibility for sales tax doesn’t fall on the customer. It falls on the business owner. That means it’s your job to:
- Collect the right amount of tax on every taxable sale (including state, county, and local rates).
- Hold those funds securely until it’s time to remit them.
- File and pay your sales tax on time and in full through the Alabama Department of Revenue.
The state does offer a small incentive to encourage timely filing. If you pay before the 20th of the month, you can take a discount on what you owe:
- 5% off the first $100 of tax due
- 2% off any amount over $100
- Up to a maximum of $400 per month
Think of it as Alabama’s way of rewarding punctuality. But miss the deadline, and instead of a discount, you’ll face penalties and interest.
For out-of-state sellers, Alabama also has a simplified option through the SSUT (Simplified Sellers Use Tax) program. Eligible remote sellers can collect and remit a flat 8% sellers’ use tax instead of calculating separate state, county, and local rates. Participants can also earn a 2% discount on the first $400,000 of taxes collected and remitted each month (up to $8,000). Just keep in mind that discounts only apply if you file and pay on time. To view all the states that provide discounts for paying on time, explore our full guide on sales tax vendor compensation.
How do I collect sales tax in Alabama?
Before you can collect a single dollar in sales tax, your business needs to be registered with the Alabama Department of Revenue (ALDOR). This step gives you a state tax account number, which you’ll use on all your filings and payments.
How to get a sales tax license in Alabama?
- Apply online through My Alabama Taxes (MAT).
Registration is free and takes about 15–20 minutes. You’ll need your business details (legal name, EIN or SSN, entity type, etc.). - Wait for approval.
Once you submit your application, it typically takes 3–5 business days to receive your sales tax account number. ALDOR will notify you once your account is active. - Understand Alabama’s “destination-based” sourcing rules.
Unlike some states, Alabama requires you to charge sales tax based on your customer’s location, not your business location. That means you’ll need to include state, county, and local rates every time you make a taxable sale. - Start collecting and itemizing sales tax.
Once registered, you’re legally required to collect sales tax on taxable goods and services and show it as a separate line item on receipts or invoices.
Because Alabama is destination-based and local tax rates vary widely, figuring out the correct amount can get tricky, especially if you sell in multiple counties or cities. That’s where DAVO comes in. By syncing directly with your POS system, DAVO ensures you’re collecting the right amount every time, without the headache of looking up rates or second-guessing calculations.
Make your sales tax less taxing with DAVO.
When is my sales tax payment due in Alabama?
Sales tax, state and local, returns are due on or before the 20th of the month following the reporting period.
- Most businesses file monthly.
- Some may be eligible for quarterly, semi-annual, or annual filing if sales volume is lower (requests must be made to ADOR before February 20 for that year).
- Out-of-state sellers under SSUT must file monthly.
Electronic payments must be submitted by 4:00 p.m. CST on the due date to be considered timely. Check with the Alabama Department of Revenue to confirm your filing frequency.
How to pay sales tax in Alabama?
In Alabama, filing and paying sales tax is a two-step process: you must file a return, and you must make a payment. Even if your business didn’t collect sales tax during a period, you’re still required to file a “zero return.”
Here’s how it works:
- Filing your return.
All Alabama businesses must file their sales tax returns online. Filing by mail isn’t an option. You’ll log in through My Alabama Taxes (MAT) using the account you created when you registered for your sales tax number. Once inside, you’ll file your return based on your reporting frequency (monthly, quarterly, semi-annual, or annual). - Making your payment.
After filing, you’ll need to pay the tax owed. MAT makes this simple by offering different payment options:- E-check, debit card, or credit card (fastest and most secure).
- Paper check by mail, payable to the Alabama Department of Revenue, if you prefer to send payment separately.
The convenient part is that Alabama’s One Spot system lets you pay not only your state tax but also your county and local taxes in one place, with no need to make multiple filings.
While MAT and One Spot give you the tools to manage everything yourself, many business owners find it stressful to stay on top of deadlines, payment scheduling, and reporting for multiple locations. That’s where DAVO makes a big difference. DAVO automatically sets aside sales tax from your daily sales, prepares your return, and submits your payment on time. So you never have to log in on the 20th or worry about late fees again.
Where does revenue from sales tax go?
Sales tax collected in Alabama is sent to the Department of Revenue, which then distributes it to both state and local governments. These dollars go directly into funding everyday essentials, from public schools and healthcare programs to local infrastructure and community services. In short, every sale you process contributes to the services that keep Alabama running.
How to manage tax-exempt sales?
As the seller, you must collect and keep a valid exemption certificate for any tax-exempt sale. Unlike some states, Alabama does not automatically exempt nonprofits or religious organizations. Therefore, you don’t want to assume 501(c)(3) status means a buyer is exempt.
Not only will you need to collect the exemption certificate, but you will need to validate it as well. The easiest way to verify is through MAT, where you can confirm exemption numbers and expiration dates. Failure to keep proper records could leave you liable for the tax, plus penalties and interest.
What happens if I miss a payment?
If your Alabama sales tax payment is late, penalties and interest will apply. Here’s what you need to know:
- Failure to Timely File Penalty: 10% of the tax due or $50, whichever is greater.
- Failure to Timely Pay Penalty: 10% of the tax required to be paid.
- Interest: Charged at the current rate (around 7%, but this can change, so always check the Alabama Department of Revenue for the latest interest rate).
If you pay electronically, timing matters. Your EFT payment must be transmitted by 4:00 p.m. CST on or before the due date to be considered on time. Payments submitted after that will be treated as late, even if initiated on the due date.
How DAVO helps with Alabama sales tax
Managing Alabama sales tax can feel overwhelming. Between tracking multiple local rates, keeping up with due dates, and worrying about penalties, it’s easy to feel stretched thin. That’s where DAVO steps in.
DAVO automatically sets aside the sales tax you collect, files your return, and makes your payment on time and in full—every time, on time. Whether you’re running a busy café in Birmingham, a boutique in Huntsville, or a restaurant in Montgomery, DAVO handles the details so you can focus on customers and growth.
Because DAVO connects directly with your existing POS system, setup is seamless. Once you’re connected, you’ll have peace of mind knowing your Alabama sales tax is handled accurately, securely, and without added stress.
Choose your POS system to get started with DAVO today.
Additional Alabama sales and local tax information:
Alabama Department of Revenue
334-887-9549
