Alabama: Sales Tax Handbook
What purchases are taxable in Alabama?
The taxability of various transactions (like services and shipping) can vary from state to state, as do policies on subjects such as whether excise taxes or installation fees included in the purchase price are also subject sales tax. This reference is here to help answer your questions about what is and is not subject to the Alabama sales tax.
Contents1.) Taxability of Goods and Services
- General Alabama taxability guidelines
- Are services subject to sales tax?
- Is shipping & handling subject to sales tax?
- Are drop shipped items taxable?
Section 1: Taxability of Goods and Services
What transactions are generally subject to sales tax in Alabama?
In the state of Alabama, sales tax is legally required to be collected from all tangible, physical products being sold to a consumer. Several examples of exceptions to this tax are items intended for use in agricultural pursuits or industry.
This means that someone in the state of Alabama who sells books would be required to charge sales tax, but an individual who sells agricultural equipment is not required to charge sales tax.
Are services subject to sales tax in Alabama?
The state of Alabama does not usually collect sales taxes on the vast majority of services performed. An example of taxed services would be one which manufactures or creates a product.
This means that a freelance accountant would not be required to collect sales tax, while a someone working in the creation of clothing may be required to collect sales tax.
You can find a table describing the taxability of common types of services later on this page.Top
Are shipping & handling subject to sales tax in Alabama?
Alabama has slightly complicated rules when it comes to taxes on shipping. Essentially, you are not required to collect sales tax on shipping charges so long as the charge is stated separately on the invoice, as "shipping and handling", or "postage and handling". If the shipping charge is not stated separately, and the product will be delivered by utilizing a common carrier of the U.S. postal mail the seller is required to collect sales tax.Top
Are drop shipments subject to sales tax in Alabama?
"Drop shipping" refers to the common business practice in which a vendor, often in a different state, makes a sale of a product which is shipped to the end-user by a third party supplier hired by the initial vendor. In Alabama, drop shipments are generally subject to state sales taxes.
Section 2: Taxability of Various Items in Alabama
This table shows the taxability of various goods and services in Alabama. If you are interested in the sales tax on vehicle sales, see the car sales tax page instead. Scroll to view the full table, and click any category for more details.
|Products on Amazon.com||TAXABLE *|
|Food and Meals|
|Leases and Rentals|
|Motor Vehicles||TAXABLE *|
|Tangible Media Property||TAXABLE *|
|Manufacturing and Machinery|
|Raw Materials||EXEMPT *|
|Utilities & Fuel||TAXABLE *|
|Medical Goods and Services|
|Medical Devices||TAXABLE *|
|Newspapers and Magazines|
|General Occasional Sales||EXEMPT *|
|Motor Vehicles||EXEMPT *|
|Optional Maintenance Contracts|
|General Optional Maintenance Contracts||EXEMPT|
|Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts||TAXABLE *|
|Pollution Control Equipment|
|General Pollution Control Equipment||TAXABLE *|
|Transportation Services||EXEMPT *|
|Software and Digital Products|
|Canned Software - Delivered on Tangible Media||TAXABLE|
|Canned Software - Downloaded||TAXABLE|
|Custom Software - Delivered on Tangible Media||EXEMPT *|
|Custom Software - Downloaded||EXEMPT|
|Customization of Canned Software||TAXABLE *|
|General Trade-Ins||TAXABLE *|
|Vending Machine Sales|
* See notes in category taxability page for details
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