How to Register for a Sales Tax Permit in Alabama

Deciding to become your own boss is a brave and important step in anyone’s entrepreneurial career. Doing things your way and not having to answer to anyone is a relief, but it also brings some new responsibilities. While working as an employee, you had to make sure the work you do is done correctly and on time, and you had to deliver the results to your boss. Consequences for mistakes might have been some sort of a pay cut, suspension or in the worst case, being fired. But you’d find a new job and get things rolling again. However, when you make a mistake while running your own business, the consequences can be even more serious. You might not be able to just start another business.

But you have already prepared for this step. You learned the tricks of the trade everywhere you worked. You made sure to learn from your mistakes and take all the best traits of your managers and other superiors you learned from. You know the best suppliers, the market gaps and the demand-supply dynamics. You are ready.

But in all your eagerness to learn the tricks of the trade, you might have forgotten to learn how to actually start a business. Making the decision to start your own business is important, and often hard, yes, but have you ever looked beyond running the business and into the legal framework that a company operates within? What are the laws and regulations you have to follow? What is it required to actually start a business?

For purposes of this article, let’s imagine that you will be running a business in the state of Alabama, and let us see what it takes to start a business and keep it within the legal framework of the state.

Registering a New Business in Alabama

The process of starting a business in Alabama does not differ much from any other state. There are several steps one has to follow: preparing a business plan, deciding the legal form of your business, establishing a financing source, checking zoning regulations, selecting a location, acquiring licenses and permits, getting a tax ID and a lot more that. The Alabama Department of Commerce recommends all this be done with the help of a business advisor or an attorney.

This guide will give you a shortened overview of your legal requirements. Alabama’s Department of Commerce stresses the need to have a business plan, as this serves as an operating tool to help you manage your business in the future, but it is also something you have to present to the bank or possible investors if you plan on securing additional financing for the business.

Once you complete the business plan and you have worked out your objectives and you know exactly what your business will be covering, you have to select a business entity type. The legal forms available in Alabama are the Proprietorship, Partnership, Corporation, Subchapter S Corporation and the Limited Liability Company (LLC). All these legal forms have their advantages and disadvantages, depending on what the requirements of your business are.

If you plan on running a small business, based from your home, something like buying merchandise in bulk to resell online, registering a business as a sole proprietorship could be the option for you. This allows you to be the sole owner of all the profits, take your own decisions and to have flexibility in management as well as relative freedom from legal constraints. However, you will be liable for any issues that may occur and financing options could be limited, among some other things.

If you plan on running a larger operation, other legal options would be a better choice. If you plan to set up a corporation, it has to be done through the Office of the Secretary of State. First, you’ll have to reserve the proposed name of the corporation with the Business Entities Division of the Office of the Secretary of State, which, if available, will grant you the certificate of reservation. Once received, you have to file a Certificate of Formation.

Next, you have to find out what licenses and permits you need for your business. You have to make sure you cover all the levels, from city to federal, and check whether your business requires any specific permits on any of these levels. Every business, must obtain a state license which is done through the Internal Revenue Service (IRS).

With all that done, it is time to focus on one of the most complex issues facing business owners: taxes.

Alabama Sales Tax Permits

According to the Alabama Department of Revenue, a business is required to pay tax within the state if the said business has a sales tax nexus. The sales tax nexus is a ‘significant presence’ in the state. To have a sales tax nexus, you must have a place of business or a retail store in the state, a warehouse or inventory, sales agents or regular presence in the state.

With that determined, you have to figure out whether what you sell is taxable. Services are generally tax-exempt while tax imposed on the retail sale of tangible personal property.

The next step is to apply for a sales tax permit. This can be done through the Alabama Department of Revenue official web application, My Alabama Taxes (MAT). Once registered online, it may take 3 to 5 days to receive an account number. To register you will have to provide personal identification information, business ID, business entity type and the date you started doing business in Alabama. You do not have to renew your sales tax permit in Alabama. However, any changes to the business, be it the address, name or the legal structure type, should be reported to the Department of Revenue.

Sales Tax Exemptions in Alabama

Not all sales are taxed in the state of Alabama. Sales of prescription drugs, gasoline and motor oil, fertilizer/insecticides/fungicides, seeds for planting purposes, feed for livestock and poultry, baby chicks and poults, livestock, sales to the United States, state of Alabama and other governmental agencies of the state are not taxed.

The state also does not tax the sales defined as wholesale sales. These are the sales of tangible personal property to licensed retail merchants, jobbers, dealers, or other wholesalers for resale. The seller must maintain the sales tax number or exemption number for these customers. This means that if you qualify for the Alabama sales tax exemption number. You have to apply for the sales and use tax certificate of exemption (Form STE-1) all of which is done through the MAT application.

In case you are presented with the Alabama sales tax exemption number, you can check the validity through the MAT. In any case, whether you are providing or receiving it, the exemption certificate has to contain the name and address of the vendor to whom the certificate copy is being provided, the date the certificate is provided, the basis for the certificate holder’s exemption claim, and it has to be signed by the certificate holder.

Contact Details

Alabama Department of Commerce

401 Adams Avenue
P.O. Box 304106
Montgomery, AL 36130-4106
Phone: 800.248.0033
Media Inquiries: 334.242.0400
Email: contact@madeinalabama.com

Alabama Secretary of State

P.O. Box 5616
Montgomery, Alabama 36103-5616
Phone: 334-242-7200
Email: John.Merrill@sos.alabama.gov

Alabama Department of Revenue

50 North Ripley Street
Montgomery, AL 36104

Sales, Use & Business Tax Division

P.O. Box 327550
Montgomery, AL 36132-7550
Phone: (334) 353-7827

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Jordan Hall

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