Alabama — Sales & Use Tax

Alabama imposes a 4% state sales tax on persons engaged in the business of selling tangible personal property at retail within the state. The tax is characterized as a privilege or license tax levied against the seller, measured by gross sales or gross receipts. The 4% general rate applies to most retail sales of tangible personal property, including merchandise and commodities of every kind and character, though certain items such as bonds and other securities are excluded.

Reduced rate for food

Effective September 1, 2025, Alabama taxes retail sales of food at a reduced state rate of 2%, down from the prior 3% rate. The reduction was enacted by Act 2025-305 and represents the second phase of a two-step reduction from the original 4% rate (the first 1% reduction took effect September 1, 2023, under Act 2023-554). The 2% rate applies to "food" as defined in 7 U.S.C. § 2012 for purposes of the federal Supplemental Nutrition Assistance Program (SNAP). This definition generally includes any food or food product for home consumption, except alcoholic beverages, tobacco, hot foods, or hot food products ready for immediate consumption. Cold groceries purchased for home preparation qualify for the 2% rate; prepared hot foods and restaurant meals remain subject to the full 4% state rate.

Other reduced rates

Alabama taxes retail sales of automotive vehicles, truck trailers, semitrailers, house trailers, and mobile home setup materials and supplies at 2%, and retail sales of certain industrial machinery used in mining, quarrying, compounding, processing, and manufacturing at 1.5%.

Local sales taxes

Local jurisdictions impose additional sales taxes on top of the state rate, resulting in combined rates that vary by location. Local rates apply to both the 4% general category and the 2% food category, though some local jurisdictions have elected to reduce or eliminate their local tax on food.

Source: Ala. Code § 40-23-2; ADOR Notice: State Sales and Use Tax Rate Reduced on Food Beginning September 1, 2025

Alabama requires out-of-state sellers without physical presence to register and collect sales or use tax when their retail sales of tangible personal property into Alabama exceed $250,000 per year based on the previous calendar year's sales. This threshold applies prospectively; enforcement began October 1, 2018 following the U.S. Supreme Court's decision in South Dakota v. Wayfair. Alabama does not impose a transaction-count threshold—only a dollar-volume test.

The $250,000 calculation includes both taxable and non-taxable retail sales made directly by the seller, but excludes wholesale sales for resale (where the buyer presents a valid Alabama sales tax license or resale certificate) and sales made through a marketplace facilitator that is already collecting Alabama tax on the seller's behalf. Remote sellers who exceed the threshold can comply by either registering under Alabama's traditional sales and use tax system or by enrolling in the Simplified Sellers Use Tax (SSUT) program, which allows collection at a flat 8% rate statewide.

Source: Ala. Admin. Code r. 810-6-2-.90.03; ADOR Sales & Use Tax Guidance for Online Sellers (July 3, 2018); Simplified Sellers Use Tax program

Alabama imposes an excise tax on the storage, use, or other consumption of tangible personal property purchased at retail. The use tax is complementary to the sales tax and applies when sales tax has not been collected. Every person storing, using, or otherwise consuming tangible personal property purchased at retail is liable for the tax, and the liability is not extinguished until the tax has been paid to the state; however, a receipt from a retailer maintaining a place of business in Alabama (or authorized by the Department of Revenue to collect the tax) relieves the purchaser from further liability for that transaction.

General rate

Ala. Code § 40-23-61(a) imposes use tax on tangible personal property at the rate of 4% of the sales price (or the amount of tax collected by the seller, whichever is greater). This is the general rate that applies to most tangible personal property subject to use tax.

Reduced rate for food

Ala. Code § 40-23-61(d) imposes use tax on the storage, use, or consumption of food at a reduced rate. Effective September 1, 2025, the food use tax rate is 2%, down from 3% (the prior rate from September 1, 2023, through August 31, 2025), and down from the original 4% rate. The reduction to 2% was enacted by Act 2025-305. "Food" is defined as food as defined in 7 U.S.C. § 2012 for purposes of the federal Supplemental Nutrition Assistance Program (SNAP), regardless of where or by what means food is sold. SNAP-eligible food items generally include any food or food product for home consumption, except alcoholic beverages, tobacco, hot foods, or hot food products ready for immediate consumption.

Industrial machinery

Ala. Code § 40-23-61(b) imposes use tax at the rate of 1.5% of the sales price on machines used in mining, quarrying, compounding, processing, and manufacturing of tangible personal property. The statute defines "machine" to include machinery used for those purposes, and the parts, attachments, and replacements made or manufactured for use on or in the operation of such machinery.

Automotive vehicles

Ala. Code § 40-23-61(c) imposes use tax at the rate of 2% on automotive vehicles, truck trailers, semitrailers, house trailers, and certain mobile home setup materials and supplies. (Automotive vehicles that are subject to state registration requirements are addressed in a separate statutory scheme at Ala. Code §§ 40-23-101 through 40-23-111.)

Source: Ala. Code § 40-23-61; ADOR Notice: State Sales and Use Tax Rate Reduced on Food Beginning September 1, 2025

Alabama requires marketplace facilitators with more than $250,000 in retail sales of tangible personal property delivered into Alabama during the preceding 12 months to register and collect simplified sellers use tax (SSUT) on sales made through their marketplace by or on behalf of third-party sellers. The $250,000 threshold includes both sales made directly by the facilitator and sales made by marketplace sellers through the facilitator's marketplace. This requirement took effect January 1, 2019. When a facilitator collects and remits SSUT on a transaction, the facilitator, the marketplace seller, and the purchaser are relieved from any additional state or local sales and use taxes on that transaction.

Source: Ala. Code § 40-23-199.2; Ala. Admin. Code r. 810-6-2-.90.04

Alabama sales tax is due monthly by the 20th day of the month following the month in which the tax accrues. Taxpayers may elect to file quarterly if their prior-year state sales tax liability was below $2,400; semi-annually if below $1,200 or they made retail sales during no more than two 30-day periods; or annually if below $600 or they made retail sales during no more than one 30-day period. Quarterly returns are due the 20th of the month following quarter-end; semi-annual returns are due July 20 and January 20; annual returns are due January 20. The election must be made in writing by February 20 of each year and filed with the Department of Revenue.

Source: Ala. Code § 40-23-7

Alabama exempts sales of tangible personal property made by wholesalers to licensed retail merchants, jobbers, dealers, or other wholesalers for resale from the sales tax. The statute defines "wholesale sale" to exclude sales by wholesalers to users or consumers not for resale—the exemption applies only when the buyer purchases for the purpose of reselling the property. This exemption is foundational to sales tax administration because it prevents tax pyramiding and ensures that sales tax is collected once, at the final retail sale to the consumer.

Certificate of exemption (Form STE-1)

To claim the resale exemption, the purchasing dealer must provide the selling dealer with a State Sales and Use Tax Certificate of Exemption, Form STE-1. Alabama law requires retailers who make purchases for resale to hold an active Alabama sales tax license. When making a tax-exempt purchase for resale, the buyer presents a copy of their sales tax license or a completed Form STE-1 to the vendor. The certificate must include the buyer's and seller's names, the exemption reason, the buyer's tax registration or business license number, a signature, the date, and a description of the merchandise being purchased. Incomplete certificates are invalid and do not relieve the seller from liability for uncollected tax.

Blanket certificates and validity period

Alabama permits the use of blanket resale certificates. Once a valid certificate is on file with a vendor, it may be reused for all subsequent exempt purchases from that vendor without requiring a new certificate for each transaction. The certificate remains valid until revoked in writing or until the information it contains becomes inaccurate. Sellers should periodically verify that the purchaser's license remains active and that the certificate information is current, particularly during audits.

In-state license requirement for Alabama resale exemptions

Alabama only recognizes resale certificates from dealers holding an Alabama sales tax license. Out-of-state resale certificates are not valid for purchases of tangible personal property in Alabama unless the out-of-state buyer also holds an Alabama license. This rule is significant in drop-shipment scenarios: if an out-of-state retailer directs an Alabama supplier to ship goods to an Alabama customer, the supplier must collect Alabama sales tax unless the out-of-state retailer presents an Alabama sales tax license or Alabama-issued Form STE-1. The Alabama Department of Revenue has clarified that retailers buying or selling for resale need an Alabama sales tax license, not merely a certificate of exemption; the license itself serves as proof of eligibility for resale purchases.

Seller reliance and liability

Sellers who accept a resale certificate in good faith and reasonably believe the purchase is for resale are protected from liability if the transaction is later determined to be taxable. However, if the seller cannot produce a valid certificate during an audit, the seller is liable for the uncollected tax, plus interest and penalties. Intentional misuse of a resale certificate by a purchaser may result in civil penalties and suspension of the exemption privilege.

Source: Ala. Code § 40-23-1(a)(9)a; ADOR: How to Apply for a Sales Tax Certificate of Exemption; Ala. Admin. Code r. 810-6-5-.02.01

Alabama exempts specific categories of tangible personal property from sales and use tax beyond the resale exemption. The exemptions are enumerated primarily in Ala. Code § 40-23-4 and § 40-23-4.1, with parallel use tax exemptions in § 40-23-62. The following are the most frequently applied exemptions.

Prescription drugs and medicines

Alabama exempts prescription drugs from sales and use tax under two separate provisions. Ala. Code § 40-23-4.1(a) defines "drugs" to include "any medicine prescribed by physicians when the prescription is filled by a licensed pharmacist, or sold to the patient by a physician." Section 40-23-4.1(b) extends the exemption to medicines prescribed by physicians for human consumption or intake that are purchased by hospitals, infirmaries, sanitariums, nursing homes, medical clinics, and physicians for use or consumption in rendering medical services to patients. The exemption applies regardless of whether the medicines are diagnostic in nature or used in preventing, treating, or mitigating diseases.

Additionally, Ala. Code § 40-23-4(a)(31) provides a narrower exemption for "all medicines prescribed by physicians for persons who are 65 years of age or older, and when the prescriptions are filled by licensed pharmacists." This exemption applies under both state and local sales tax laws.

Over-the-counter drugs and non-prescription medications are not exempt and remain subject to the full sales tax rate.

Agricultural inputs

Alabama exempts a range of agricultural inputs to support farming, livestock, and poultry production:

• Feed for livestock and poultry is exempt. Ala. Code § 40-23-4(a)(4) exempts "feed for livestock and poultry, but not including prepared food for dogs and cats."

• Insecticides and fungicides used for agricultural purposes are exempt under § 40-23-4(a)(4). The exemption also extends to insecticides and fungicides used by persons properly permitted by the Department of Agriculture and Industries for structural pest control work.

• Herbicides for agricultural uses are exempt under § 40-23-4(a)(25). The statute defines "herbicides" to mean "any substance or mixture of substances intended to prevent, destroy, repel, or retard the growth of weeds or plants," including preemergence, postemergence, lay-by, pasture, defoliant, and desiccant herbicides.

• Seedlings, plants, shoots, and slips used for planting vegetable gardens, truck farms, and other agricultural purposes are exempt under § 40-23-4(a)(22). The statute expressly provides that the exemption does not extend to "plants, seedlings, nursery stock, or floral products" sold for ornamental or non-agricultural purposes.

• Drugs, medicines, vitamins, and other nutrients for use in the production and growing of fish, livestock, and poultry are exempt under § 40-23-4(a)(30). The exemption covers antibiotics, hormones, hormone preparations, drugs, medicines, other medications including serums and vaccines, vitamins, minerals, and other nutrients "by whomsoever sold."

• Feed ingredients used in mixing and preparing feed for fish raised to be sold on a commercial basis, livestock, and poultry are exempt under § 40-23-4(a)(21), including antibiotics, hormones, drugs, medicines, vitamins, minerals, and other nutrients when used as ingredients in commercial feed.

Manufacturing and industrial machinery

Alabama does not provide a full exemption for manufacturing machinery. Instead, Alabama taxes manufacturing machinery at a reduced rate of 1.5% under Ala. Code § 40-23-2(a)(3), which applies to "machines used in mining, quarrying, compounding, processing, and manufacturing of tangible personal property." This reduced-rate treatment is covered in the "State sales tax rate and imposition" section of this guide. Repair parts and consumables (such as lubricants) used in connection with qualifying production machinery also qualify for the 1.5% rate.

Sales to governmental entities

Ala. Code § 40-23-4(a)(11) exempts "the gross proceeds of sales of tangible personal property to the State of Alabama, to the counties within the state and to incorporated cities and towns of the state." This exemption applies to direct sales to qualifying governmental entities. Sales to contractors who are constructing public works for a governmental entity are generally not exempt—the contractor is treated as the retail purchaser subject to sales tax on materials unless a specific statutory exception applies.

Utilities subject to regulation

Ala. Code § 40-23-4(a)(8) exempts "the gross proceeds of sales or gross receipts of or by any person, firm, or corporation, from the sale of transportation, gas, water, or electricity, of the kinds and natures, the rates and charges for which, when sold by a public utility, are fixed and regulated by law or by some governmental agency." This exemption applies when the rates are subject to regulatory oversight, such as by the Alabama Public Service Commission.

Sales of food via SNAP (food stamps)

Ala. Code § 40-23-4.2 exempts from sales and use tax "the gross proceeds of the sales of food eligible to be purchased with food stamps" when purchased with Supplemental Nutrition Assistance Program (SNAP) benefits. This exemption does not apply to the same food when purchased with cash or credit.

Source: Ala. Code § 40-23-4; Ala. Code § 40-23-4.1; Ala. Code § 40-23-4.2; Ala. Code § 40-23-2

Alabama sales tax applies to the sale of tangible personal property, not to services generally. Ala. Code § 40-23-2(1) imposes the 4% state sales tax "upon every person ... engaged ... in the business of selling at retail any tangible personal property whatsoever." The statute does not impose a general sales tax on services. As a result, most professional, personal, and business services—such as legal services, accounting, consulting, haircuts, and dry cleaning—are not subject to Alabama sales tax when sold as standalone services unaccompanied by a transfer of tangible personal property.

Separately stated labor charges for repair and installation are exempt

Alabama expressly exempts labor charges for repair or installation of tangible personal property when those charges are separately stated on the customer's invoice. The Alabama Department of Revenue states: "labor to repair or install property is exempt as long as it is billed as a separate item on the customer's invoice (labor to fabricate an item is not exempt)." This exemption applies to automotive repair shops, appliance repair, electronics repair, equipment installation, and similar service providers who may exclude separately stated labor, installation, and service charges from the taxable sales price.

Alabama Administrative Code rule 810-6-1-.08 codifies this principle: "Labor, installation and service charges not separately stated on the invoice to the customer are taxable. If the labor, installation, and service charges are separately stated from the sale of parts, the labor, installation, and service charges are not taxable." The rule treats separately stated labor as a true service, outside the scope of the tangible-personal-property tax base. If the provider does not separately state labor—for example, quoting only a single combined price for parts and labor—then the entire charge, including the embedded labor component, is subject to sales tax.

Labor to fabricate is taxable

Alabama distinguishes between labor to repair or install (exempt when separately stated) and labor to fabricate (taxable). Fabrication labor produces or manufactures a new product for the customer; the seller is deemed to be selling the finished tangible personal property at retail, and the entire sales price—materials plus fabrication labor—is subject to sales tax. The ADOR guidance specifies that "labor to fabricate an item is not exempt." This rule applies to custom manufacturing, custom upholstery, custom metalwork, and similar activities where the provider is creating a new item rather than repairing or installing an existing one.

Services that include a transfer of tangible personal property

When a service transaction includes the transfer of tangible personal property to the customer, Alabama may treat the transaction as a taxable retail sale. For example, Alabama Administrative Code rule 810-6-1-.03 provides that an upholsterer "renders a service and sells tangible personal property." Materials used or consumed by the upholsterer that are not passed to the customer are considered supplies and are taxable at the time of purchase by the upholsterer. Materials passed to the customer that either lose their identity or are inconsequential to the product are also taxable at the time of purchase by the upholsterer. The regulation does not provide a separately stated labor exemption for upholstery fabrication; instead, it treats the upholsterer as purchasing materials at retail.

In contrast, Alabama Administrative Code rule 810-6-2-.27.06 provides that state, city, and county owned and operated hospitals, infirmaries, sanitariums, and like institutions "are primarily engaged in the business of rendering services. They are not required to collect and remit sales tax on their gross receipts from meals, bandages, dressings, drugs, x-ray photographs, or other tangible personal property when such items are used in rendering hospital services. This is true irrespective of whether or not such tangible personal property is billed separately to their patients." This regulation reflects a policy choice to treat certain service providers as outside the retail-sales framework even when tangible property is transferred incident to the service.

Computer software is treated as tangible personal property

Alabama treats computer software as tangible personal property subject to sales tax. Alabama Administrative Code rule 810-6-1-.92 provides: "Computer software is tangible personal property. The retail sale or licensure of computer software is subject to Sales Tax, Use Tax, or Rental Tax, whether the transaction is effected by a transfer of title, possession, or a license to use or consume. Unless specifically stated otherwise, the licensing of computer software is considered a retail sale, and not a rental, and is subject to Sales Tax or Use Tax regardless of its function or form of transmission to the purchaser or licensee." This rule applies to software delivered on physical media, via electronic download, and via license. The regulation does not explicitly address Software-as-a-Service (SaaS) or cloud-based software accessed remotely without a transferred copy; practitioners should confirm current ADOR guidance on remotely accessed software applications.

No general exemption for professional or personal services

Alabama does not provide a statutory list of taxable services. Instead, taxability depends on whether the transaction involves a sale of tangible personal property. Services that do not involve the transfer of tangible personal property to the customer—legal services, accounting, consulting, engineering design (when no tangible deliverable is transferred), advertising agency services (when no tangible advertising materials are sold), and similar professional services—are not subject to Alabama sales tax. Personal services such as haircuts, spa services, fitness training, and lawn care (when no tangible property is sold) are likewise not taxable. The absence of a general service tax means that Alabama's sales tax base is narrower than states that enumerate specific taxable services.

Source: Ala. Code § 40-23-2; ADOR Sales Tax – Sales of Exempt Items; Ala. Admin. Code r. 810-6-1-.08 (Repair Shops and Garages); Ala. Admin. Code r. 810-6-1-.03 (Services Rendered By Upholsterer); Ala. Admin. Code r. 810-6-2-.27.06 (Hospitals and Like Institutions); Ala. Admin. Code r. 810-6-1-.92 (Computer Hardware and Software)