Alabama’s remote seller use tax program explained

by TaxJar November 1, 2023

Please note: This blog was originally published in 2020. It’s since been updated for accuracy and comprehensiveness.

Alabama has instituted a new program for out-of-state online sellers which would allow them to just charge a 8% flat rate to buyers in Alabama. Thinking this method of sales tax simplification might be too good to be true, we emailed the incredibly helpful Alabama Department of Revenue to investigate. Here’s the full scoop:

Alabama’s “Simplified Seller Use Tax Remittance Act” explained

The Alabama Department of Revenue detailed the new regulation in a press release. Long story short:

The Alabama DOR recognizes how difficult collecting and remitting sales and use tax can be
This new program will allow out-of-state sellers who collect in Alabama to charge a flat 8% use tax to Alabama buyers
As an incentive, sellers get to keep 2% of the sale tax collected provided they pay on time
Taxpayers won’t have to worry about reporting local sales tax, and part of the 8% they remit will be divided up among Alabama localities based on population
Simplified seller’s use tax will be due on the 20th of the month each month
This program goes into effect on October 1, 2015
You can apply for the program using this form: Application to Participate in Simplified Sellers Use Tax remittance Program

What Alabama simplified sales tax means for online sellers

If you have nexus in Alabama:

First off, if you already have sales tax nexus in Alabama, this new program won’t change anything for you. Ties that create nexus in Alabama include:

An office or place of business such as a retail store
A warehouse or inventory stored in the state
Regular presence of traveling salespeople or other agents
Remote entity nexus

In other words, if you thought – like I first did – that this new act would simplify use tax filing for remote sellers who have nexus in Alabama then that’s not quite correct.

So if you already have nexus in Alabama – perhaps you have an employee there or store goods in a warehouse – then continue to collect and remit Alabama use tax as you always have. (Read here for more on what businesses need to know about sales and use tax in Alabama.)

If you don’t currently have nexus in Alabama:

If you don’t currently have nexus in Alabama then you are free to avail yourself to this program. If you don’t have nexus but choose to collect sales tax in Alabama, it just might make your life easier.

The pros are that:

This program offers a simplified collection and filing option. No more trying to figure out sales tax rates at individual localities in Alabama, which is a complicated destination-based sales tax state.
You can get 2% of what you collect back in your pocket. (Read here for more about states that offer sales tax discounts.)
According to a representative of the Alabama Department of Revenue, “Another important incentive is if there is a change in federal law that removes current federal limitations on states’ ability to enforce their sales and use tax jurisdiction against businesses that lack a physical presence, those businesses registered with the Department as a participant in the program at least six months prior to the change in law will continue to qualify for the program.”

But the con is that:

If you don’t currently have to collect sales tax in Alabama, it could very well be more trouble to your business than it’s worth to start now. As always, where and when you collect sales tax is a business decision you must make for yourself or with your trusted sales tax expert.

Alabama seems to be preparing for a time when federal internet sales tax legislation passes. You can read more here about the current state of internet sales tax legislation as well as TaxJar’s opposition to all the current acts on the table.