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Business And Tax Climate In Alabama



Alabama And Taxes

Last month, we were in the cold climate of Alaska. This month we travel to the humid subtropical climate of Alabama, located in the southeastern region of the united states. It is the 30th largest by area and the 24th most populous of the 50 states. With a total of 1,500 miles of inland waterways, Alabama has the most of any state.

About 3/5 of the land area is a gentle plain with a general descent towards the Mississippi River and Gulf of Mexico. The north Alabama region is mostly mountainous, with the Tennessee River cutting a large valley and creating numerous creeks, streams, rivers, and lakes. The state ranges from sea level at Mobile Bay to over 1,800 feet in the Appalachian Mountains in the northeast. The highest point is Mount Cheaha, at 2,423 feet.

Business Climate

Alabama’s industrial outputs include iron and steel products (including cast-iron and steel pipe), paper, lumber, and wood products, mining (mostly coal), plastic products, cars and trucks, and apparel. In addition, the state also produces aerospace and electronic products, mostly in the Huntsville area, the location of NASA’s George C. Marshall Space Flight Center and the U.S. Army Material Command.

A great deal of Alabama’s growth since the 1990s has been due to the state’s expanding automotive manufacturing industry. The state is home to Honda Manufacturing of Alabama, Hyundai Motor Manufacturing Alabama, Mercedes-Benz U.S. International, and Toyota Motor Manufacturing Alabama, as well as their suppliers. Since 1993, the automobile industry has generated more than 67,800 new jobs in the state. Alabama currently ranks 4th in the nation for vehicle exports.

Alabama’s agricultural outputs include poultry and eggs, cattle, fish, plant nursery items, peanuts, cotton, grains such as corn and sorghum, vegetables, milk, soybeans and peaches. Although it is known as the cotton state, Alabama ranks between eighth and tenth in the nation in cotton production with Texas, Georgia and Mississippi comprising the top three.

Tax Climate  

The top individual income tax rate is 5.00% and the top corporate income tax rate is 6.55%.

Apportionment: Alabama uses the double weighted sales factor for the apportionment of corporate income taxes.

Alabama uses the market-based method for the sourcing of services and intangible property.

Sales Tax Structure  

The state sales tax rate is 4%.

Alabama has enacted economic nexus legislation. Remote sellers are required to pay Alabama sales tax if the company’s gross sales total more than $250,000 in the previous calendar year. This legislation became effective on Oct. 1, 2018. Note that this state does not have a transactional threshold.

Alabama has also enacted legislation containing marketplace nexus provisions. As of January 1, 2019, marketplace facilitators with sales into the state made through the marketplace of $250,000 or more for the preceding 12 months must either:

  • Register with the Alabama Department of Revenue (DOR) to collect and remit use tax on sales made through the marketplace, or
  • Report such retail sales and provide customer notification.

Alabama is moderate in its approach to the taxation of technology products for sales tax purposes. All digital products are taxable. Prewritten computer software that is electronically downloaded is taxable while custom computer software that is electronically downloaded is exempt. Lastly, all cloud services are exempt. How products are produced, sold and delivered is critical to determining their tax status.

Last year, Alabama had two sales tax holidays involving Back-to-school supplies and Severe Weather Preparedness supplies.  Last year, the Back to School sales tax holiday occurred from July 19-21, 2019. This year, the Severe weather preparedness sales tax holiday begins on February 21 and goes until February 23, 2020. For more information on these sales tax holidays, click here.

Random Facts

  • Helen Keller, born on June 27, 1880, in Tuscumbia Alabama, was the first deaf person to earn a college degree. A film, “The Miracle Worker,” was produced in 1962 depicting the story of the remarkable tutor Anne Sullivan and Helen Keller.
  • The arrest of Rosa Parks in 1955, when she refused to give up her bus seat to a white man in Montgomery became a key event in the civil rights movement. She is called “the mother of the civil rights movement.”
  • On January 11, 1861, Alabama seceded from the union. The delegates from six states met in Montgomery and formed the Confederate States of America. Montgomery was chosen as the capital. Because of this, Montgomery is known as the “Cradle of the Confederacy.” The Confederate flag was designed and first flown in Alabama in 1861.
  • Saturn V, the rocket used by NASA to send people to the moon, was developed at NASA’s Marshall Space Flight Center in Huntsville, Alabama. It was launched in 1967. The rocket was as tall as a 36-story-tall building and weighed as much as 400 elephants.

Have a question? Contact Monika Miles.

 

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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