At a glance
- Corporate tax
- 6.5% (federal tax deductible)
- Tax on wages
- 2%–5%
- Sales tax
- 4% + local (SSUT 8% flat)
- Economic nexus
- $250,000 in retail sales
- Minimum wage
- $7.25/hr (federal)
- UI wage base
- $8,000
- New-employer UI rate
- 2.7%
- Paid leave program
- None
- Annual report
- With Form CPT; $10 SOS fee
2026 figures, each explained with its source on the area’s page. On top of the federal baseline.
Setup, in order
Register with the Secretary of State
Before transacting business in AlabamaRegister the corporation as a foreign entity with the Secretary of State.
Register with the Department of Revenue
Before the first Alabama payrollRegister through My Alabama Taxes for corporate income tax, business privilege tax and withholding.
Open an unemployment account
Before the first Alabama payrollRegister with the Alabama Department of Workforce for unemployment compensation; new employers pay 2.7% on $8,000.
Report new hires
Within 7 days of hireReport each new or recalled employee to the New Hire Center; online if you have five or more employees.
Register locally
Before the first payroll in each cityRegister for any city occupational license tax where employees work, and get city and county business licenses.
Register for sales tax if you have nexus
When taxable Alabama sales startRegister for sales tax with ADOR and with self-administered localities, or join SSUT if you are a remote seller past $250,000.
Calendar the privilege tax return
Every year, with the income tax returnFile Form CPT, the business privilege tax return and annual report, with Form 20C each year.
The six areas
- AccountingAccounting and state tax in AlabamaAlabama taxes corporations at 6.5% with a deduction for federal income tax, apportions on a single sales factor, and conforms to federal changes automatically, so it follows federal R&D expensing and bonus depreciation.Corporate income tax rate6.5%
- ReceivablesReceivables and sales tax in AlabamaAlabama layers 200-plus state-administered local taxes and self-administered cities on its state sales tax; remote sellers past $250,000 can collect a flat 8% through SSUT, and SaaS taxability is unsettled.Local taxesState-run and self-run
- PayablesPayables and contractors in AlabamaAlabama’s payables issue is consumers use tax at state and local rates on untaxed purchases, filed with the Department of Revenue and any self-administered localities; a vendor’s 8% SSUT collection ends the buyer’s obligation.Consumers use taxState plus local
- PayrollPayroll taxes and employer rules in AlabamaAlabama payroll is state withholding at 2% to 5%, unemployment tax at 2.7% on the first $8,000 for new employers, new-hire reports within seven days, and city occupational taxes in places like Birmingham.State income tax2%, 4%, 5%
- ComplianceCompliance and filings in AlabamaAlabama compliance is Secretary of State registration, the business privilege tax return that doubles as the annual report, Form 20C, and city and county licenses wherever you operate.Business privilege tax rate$0.25 to $1.75
- AdvisoryAdvisory: credits and decisions in AlabamaAlabama is easy on federal conformity and deducts federal tax, but its self-administered local taxes, seven-day new-hire rule and unsettled treatment of SaaS are where startups trip.Personal income tax2%, 4% and 5%
Who you register with
- Alabama Department of Revenue (ADOR)Corporate income tax, business privilege tax, withholding and state-administered sales tax (My Alabama Taxes)
- Alabama Department of WorkforceUnemployment compensation tax, new hire reporting and workers’ compensation
- Alabama Secretary of StateForeign entity registration
- Self-administered cities and countiesLocal sales, use and occupational license taxes they collect themselves
- Alabama State Treasury — Unclaimed PropertyAnnual holder report
Hiring across the border
An employee who lives in one state and works in another is the most common way a startup ends up registered in two. These are Alabama’s neighbors.
- FLFloridaNo wage tax, but a 5.5% corporate tax, doc stamps on notes, and no more tax on rent.
- GAGeorgiaA flat 4.99% for 2026, single-factor apportionment, an R&D credit that offsets payroll.
- MSMississippiA 5% top rate with throwback, a franchise tax near repeal, and no tax on cloud SaaS.
- TNTennesseeNo wage tax, but franchise, excise and gross-receipts taxes on the entity, and taxed SaaS.
Common questions
Does Alabama follow the federal R&D expensing rules?
Yes. Alabama corporate income tax conforms to federal changes automatically unless the Legislature decouples, and the 2025 federal changes to research expensing and bonus depreciation flowed through. The Department of Revenue’s September 2025 notice explains that for 2025, and for 2026 where the federal election is made, amounts already deducted on the 2024 Alabama return under the old amortization rules are added back so nothing is deducted twice.
How do we collect Alabama sales tax?
It depends on where you are. A seller with no physical presence in Alabama that passes $250,000 of retail sales into the state can join the Simplified Sellers Use Tax program, collect a flat 8% and file one monthly return with the Department of Revenue. A seller with an Alabama location registers for sales tax with the Department and also with each self-administered city or county where it sells.
Do we owe Alabama use tax on software?
Usually yes for software you download or install: the Alabama Supreme Court held that all software, canned or custom, is tangible personal property, and the Department’s rule taxes it regardless of how it is transmitted. If the seller charged Alabama tax, including the flat 8% under the Simplified Sellers Use Tax program, you owe nothing further; if not, consumers use tax applies.
How quickly do we report new hires in Alabama?
Within seven days of the hire or recall date, much faster than the 20 days most states allow. Employers with five or more employees must report online through the New Hire Center; smaller employers can report online or send a copy of the W-4.
What is the Alabama business privilege tax?
Alabama’s business privilege tax is an annual tax on the privilege of doing business, measured by Alabama net worth at a rate from $0.25 to $1.75 per $1,000 that rises with the company’s Alabama taxable income, capped at $15,000. A loss-making startup is in the lowest bracket, and since 2024 a computed tax of $100 or less is not due at all.
Is SaaS taxable in Alabama?
There is no statute, rule or published Department guidance that directly addresses remotely accessed software in Alabama. The Department’s software rule taxes software regardless of how it is transmitted, and the Alabama Supreme Court held in 2019 that all software is tangible personal property, but neither addresses access to software the customer never receives. Companies with meaningful Alabama sales often ask the Department for a ruling.
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Alabama Department of Revenue — Corporate Income Tax
- Alabama Department of Revenue — Business Privilege Tax
- Office of the Governor — HB 391 (Act 2022-252) small business privilege tax relief
- Alabama Department of Revenue — Notice: Research and Experimental Expenditures (September 2025)
- Bradley — Alabama DOR analysis of the OBBBA’s impact on the Alabama income tax
- Alabama Department of Revenue — Individual Income Tax
- Alabama Department of Revenue — Sales Tax
- Alabama Department of Revenue — Sales & Use Tax Rates
- Alabama Department of Revenue — Simplified Sellers Use Tax (SSUT)
- Alabama Department of Revenue — Consumers Use Tax
- EY Tax News — Alabama Supreme Court: all software is tangible personal property (2019)
- Alabama Department of Workforce — New Hires
- Alabama Department of Workforce — Employers FAQ (new-employer rate and wage base)
- Alabama Secretary of State — Business Entities
- Alabama State Treasury — Unclaimed Property
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.