Key figures
Alabama payables
2026, with sources
Use tax, state and local
Alabama companies owe consumers use tax on taxable goods bought for use in Alabama when the seller did not charge Alabama tax, at the state rate plus the local rate where the goods are used. The local piece is what makes it harder than in most states: cities and counties that administer their own taxes collect their use tax themselves, so a company may file use tax with the Department of Revenue and with one or more localities.
Software and the 8% shortcut
Software is tangible personal property in Alabama, so licenses for downloaded or installed software are taxable. Many remote sellers collect under the Simplified Sellers Use Tax program, charging a flat 8% that covers both state and local tax and ends the buyer’s obligation.
Example: a Mobile startup buys $20,000 of downloaded design software from an out-of-state vendor. If the vendor charged the SSUT 8%, $1,600, the startup owes nothing more. If the vendor charged nothing, the startup accrues consumers use tax at the state rate plus Mobile’s local rate and remits each to the agency that administers it.
The federal baseline
This page covers what Alabama adds. The federal rules underneath it apply here too.
Common questions
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.
A vendor charged us 8% Alabama tax. Is that the end of it?
A seller in the Simplified Sellers Use Tax program collects a flat 8% on every Alabama sale, and that payment relieves the buyer of any additional state and local use tax on the purchase. If your combined local rate is lower than 8%, the Department allows the purchaser to seek a refund or credit of the difference.
Payables next door
- FLFlorida payablesFlorida has no state 1099 filing but requires contractors paid $600 or more to be reported to the new hire registry; commercial rent stopped being taxed on October 1, 2025.
- GAGeorgia payablesGeorgia participates in the combined federal/state 1099 program; 1099s are filed directly with the DOR only when Georgia tax was withheld.
- MSMississippi payablesMississippi takes 1099s for personal services only at $3,000 or more, due February 28, and since 2023 exempts software hosted outside the state from use tax, leaving use tax mainly for goods and downloads.
- TNTennessee payablesTennessee has no state 1099 filing and no contractor withholding; the payables issue is use tax, which reaches the SaaS tools a startup buys because remotely accessed software is taxable here.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Alabama guide
- AccountingAccounting and state tax in AlabamaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in AlabamaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in AlabamaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in AlabamaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in AlabamaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
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.