Operating a business in Alabama requires a solid understanding of the state's tax framework. The base state sales tax rate is 4%, with local jurisdictions adding up to 7.5%. LLC formation costs $200 in 2026.
Economic Nexus in Alabama
Remote sellers must collect Alabama sales tax if they exceed $250,000 in annual sales within the state. This threshold has been in effect since 2019-10-01. Marketplace facilitators like Amazon and Etsy are also required to collect and remit tax on behalf of third-party sellers. The Alabama Department of Revenue enforces these provisions and provides registration guidance at https://www.revenue.alabama.gov.
LLC Formation in Alabama (2026)
Forming an LLC in Alabama costs $200 for the initial filing. There is no annual franchise tax, keeping ongoing costs low. Alabama imposes a state income tax, which affects pass-through LLC taxation.
The process involves filing Articles of Organization with the Secretary of State, obtaining a federal EIN, and registering for applicable state tax accounts. You will also need a sales tax permit from the Alabama Department of Revenue.
Key Tax Rules
• Alabama has a 4% state sales tax rate, one of the lower base rates in the US.
• Local jurisdictions can add up to 7.5%, creating combined rates as high as 11.5%.
• Alabama is one of few states that taxes groceries at the full state rate.
• Marketplace facilitators must collect and remit sales tax on behalf of third-party sellers.
Sales Tax Exemptions
The following categories are generally exempt from sales tax in Alabama: prescription drugs, agricultural equipment, manufacturing machinery. Businesses should maintain proper documentation for exempt transactions.