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There are several tax types that you should familiarize yourself with as a business owner. This guide will provide you a brief overview of common tax types on business in Alabama.
Taxes on the Business Itself
Federal Taxes
Income from proprietorships, partnerships or other unincorporated businesses is subject to individual income taxes of the owners using form 1040 with appropriate schedules. Incorporated businesses are subject to U. S. corporate income tax laws. For further information contact: Internal Revenue Service Tax Information 1-800-829-1040 www.irs.gov
State Taxes
Like the federal income tax, the state also requires that income from proprietorships, partnerships or other unincorporated businesses be taxed at the state individual income tax rate of the owners. In Alabama, both foreign and domestic corporations are subject to a net income tax and Alabama business privilege tax. The Alabama Department of Revenue – Sales, Use & Business Tax Division is available to render assistance to taxpayers at its Taxpayer Service Centers located throughout the State of Alabama, and at its Foreign Audit Section and Central Office located in Montgomery. For more information contact the Alabama Taxpayer Service Center nearest you.
Sales, Use, and Business Tax
Learn more from the Alabama Department of Revenue’s Sales, Use and Business Tax Division Visit the Sales, Use, and Business Tax FAQ page for information on e-commerce and mail order sales tax rulings, as well as information regarding who collects and enforces the 37 different taxes in the state. Alabama Revenue Department Sales, Use and Business Tax Division P.O. Box 327550 Montgomery, AL 36132 334-353-7827
Property Tax
The Alabama Department of Revenue, Property Tax Division administers property tax within the state. Learn more here. Learn more about tax rates for classes of property, property tax exemptions, and county mileage rates.
Individual and Corporate Tax
Business Privilege Tax
This tax is owed by all corporations, limited liability entities, and disregarded entities which either are doing business in the State of Alabama, or are registered with the Alabama Secretary of State’s Office to do business in Alabama. The Alabama business privilege tax return and payment are due at the same time as the taxpayer’s corresponding federal income tax return. In the case of a taxpayer’s initial return, two and one-half months after the taxpayer comes into existence, qualifies or registers to do business, or commences doing business in Alabama as the case may be. Learn more here.
Business entities are liable for the Alabama business privilege tax for each taxable year during which the entity is in legal existence, regardless of the level of business activity. The Alabama business privilege tax is based on the net worth of the business entity and is levied on business entities by §40-14A-22, Code of Alabama 1975. Generally, the minimum business privilege tax is $100.
Corporate Shares Tax
Please contact the Alabama Department of Revenue, Individual and Corporate Tax Division at 334-242-9800 for more information or forward your correspondence to: Alabama Department of Revenue Individual and Corporate Tax Division Business Privilege Tax Section PO Box 327431 Montgomery, AL 36132-7431
Income Tax
This tax is on the entire net income of every individual and corporation domiciled in Alabama, and of every non-resident deriving income from within Alabama. Income tax is required to be paid throughout the year either by withholding or estimated tax. Withholding of Alabama income tax is required by all employers. Whenever a new employee begins a new job, he or she is required to complete a form A-4, Exemption Certificate, and file it with the employer. The employer withholds Alabama Income Taxes on the basis of the information furnished by the employee on this exemption certificate. If an employer fails to secure a completed A-4 form from his employee, the employer must withhold Alabama Income Taxes on the basis of no exemptions. A Federal form W-4 will not be recognized in lieu of a form A-4. Every employer is required to secure completed exemption certificates from their employees. Tax withheld is based on withholding tables or the formula provided in the “State of Alabama Withholding Tax Tables and Instructions for Employers” publication. Assignment of an Alabama withholding tax account number is required before an employer may submit Alabama Withholding Tax to the Department of Revenue. Employers may obtain a withholding tax account through the My Alabama Taxes online filing system by visiting myalabamataxes.alabama.gov. The taxpayer must file all Withholding tax returns electronically through the My Alabama Taxes system. A declaration of individual estimated income tax is required of an individual who is subject to income tax if the individual anticipates having income from sources other than wages. In the case of a single or married person filing separately having non-wage income of $1,500 or more and in the case of a married person living with spouse and filing a joint return having non-wage income of $3,000 or more, a declaration of estimated income tax is required. Domestic corporations (corporations created or organized under the laws of the state of Alabama) must pay a corporate income tax imposed on net income at the rate of 6.5%. Foreign corporations (corporations created or organized outside the state of Alabama) pay this tax at a rate of 6.5% also, and it is applicable to the net income allocated and apportioned to Alabama. Note: There are special rules with respect to the apportionment of income in the case of certain corporations having income from both within and outside the state of Alabama. Please contact the Alabama Department of Revenue, Individual and Corporate Tax Division at 334-242-9800 for more information.
Resources
Employment Tax
Employment-related taxes can generally fit into three categories: those taxes you must pay for each employee, taxes you must withhold from each employee’s pay and workman’s compensation insurance. Listed below are those taxes which are withheld from your employees’ gross wage or other expenses paid by the employer only.
Payroll Withholding Tax
Federal Income Tax Withholding
For more information concerning federal withholdings, read Publication 15 (Circular E): Employer’s Tax Guide Internal Revenue Service Tax Information Toll Free: 1-800-829-1040 www.irs.gov
Social Security Tax (FICA)
Department of Health and Human Services Social Security Administration 1-800-772-1213 www.ssa.gov Order forms from the Department of Health and Human Services online or by phone.
State Withholding Tax
Read Withholding Tax Tables and Instructions for Employers and Withholding Agents to learn about tax tables and general instructions for computing, withholding, and remitting Alabama withholding tax. Be aware that depending on your business’ physical location, certain local withholding taxes may apply. You may wish to contact your local city government offices concerning such taxes. Alabama Revenue Department Withholding Tax Section P.O. Box 327480 Montgomery, AL 36132-7480 334-242-1300 State unemployment tax and local occupational taxes are not administered by the Department of Revenue. Contact Alabama Department of Labor for more information concerning unemployment tax at 334-242-8830. To obtain information concerning local occupational tax, you must contact the city or county which is administering the tax.
Other Taxes and/or Expenses Paid by the Employer
Federal Unemployment Tax
For more information concerning Federal Unemployment Tax (FUTA), read Publication 15 (Circular E): Employer’s Tax Guide Internal Revenue Service Tax Information 1-800-829-1040 www.irs.gov
State Unemployment Tax
Alabama Department of Labor Unemployment Compensation Tax Division 649 Monroe Street Montgomery, AL 36131 334-242-8830labor.alabama.gov
Workmen’s Compensation Insurance
Alabama Department of Labor Workmen’s Compensation Division 649 Monroe Street Montgomery, AL 36131 334-242-2868 or 1-800-528-5166 labor.alabama.gov
Tax Numbers
Federal Employer Identification Tax Number
Every person who pays wages to one or more employees and who has not previously secured an identification number must file with the Internal Revenue Service for an employer identification number. The application must be filed by those who wish to pay wages on or before the seventh day after the date on which business begins. The federal employer identification number will also be needed for use on Alabama tax forms. To obtain a federal identification tax number contact: Internal Revenue Service 1-800-829-3676 Ask for form SS-4www.irs.gov
Alabama Sales Tax Number
Anyone who sells tangible personal property to an end user and collects sales tax must have an Alabama sales tax number. To obtain an Alabama sales tax number contact: State Department of Revenue Central Registration P.O. Box 327790 Montgomery, AL 36132-7790 334-242-1490 Access the Combined Registration/Application here.
Alabama Income Tax Withholding Number
Any business that hires employees and pays wages needs an Alabama income tax withholding number to hold and remit the taxes withheld to the Department of Revenue. To obtain an Alabama income tax withholding number contact: State Department of Revenue Income Tax Division Withholding Tax Section P.O. Box 327480 Montgomery, AL 36132-7480 334-242-1170 Apply for an Income Tax Withholding Number with form COM 101 here.
State Unemployment Compensation Tax Number
The unemployment compensation tax number is a requirement in order to report your quarterly wages paid to employees. To obtain an unemployment compensation tax number contact: Alabama Department of Labor Industrial Relations Building Status Unit 649 Monroe Street, St. Room 416 Montgomery, AL 36131 334-242-8830 Form SR2 is used to determine liability and obtain an unemployment compensation tax number. complete this form online through the e-gov (electronic filing) system. For quarterly wage filings and payment of unemployment taxes due, establish an electronic filing account and file online. For questions call 334-954-4701.