Registration Requirements in Alabama

Businesses operating in Alabama may need to register with the Alabama Secretary of State. More information can be found here: 

https://sos.alabama.gov/sos-office

All entities with business operations in Alabama are required to register with the Alabama Department of Revenue. 

More information can be found at the following website: 

https://revenue.alabama.gov/

S-Corporation Income Tax

Alabama recognizes the federal S-election, and Alabama S corporations are not required to pay income tax to the state. However, individual S corporation shareholders will owe state tax on their share of the business’ income.

S corporations still need to file a Alabama Form 20S - S Corporation Information/Tax Return. 

LLC/Partnership Income Tax

Not required to pay income tax to Alabama. Business income is passed to partners who pay Alabama income tax at personal level. Partners will owe state tax on their share of the business’ income. 

Partnerships and LLCs will still need to file Alabama Form 65 - Partnership/LLC Return of Income. 

Privilege Tax

Privilege Tax applies to all businesses in Alabama EXCEPT sole proprietors.

Affected businesses must pay minimum privilege tax of $100 regardless of income.

The tax rates for Alabama privilege tax are as follows: 

Federal taxable income apportioned and allocated to Alabama

Privilege tax returns for corporations are due no later than two and a half months after the beginning of a taxpayer's taxable year. 

For limited liability entities, the return is due no later than three and a half months after the beginning of the taxpayer's taxable year. 

Composite Tax 

Qualified “Nonresident Partners” for both S corporations and partnerships may elect to have the business report and pay a “composite income tax” on behalf of the taxpayer. The rate of the composite payment will be 5% for each non resident owners share of income. 

Individual Income Tax 

Individual income tax rates vary in Alabama between 2%-5%.

For single persons, heads of families, and married persons filing separate returns:

  • 2% First $500 of taxable income
  • 4% Next $2,500 of taxable income
  • 5% All taxable income over $3,000

For married persons filing a joint return:

  • 2%    First $1,000 of taxable income
  • 4%    Next $5,000 of taxable income
  • 5%    All taxable income over $6,000

Due Date 

Returns for both S corporations and partnerships are due on the 15th day of the 3rd month following the end of the fiscal year. For entities operating on a calendar year, the due date is March 15th.

Estimated Payments 

Pass thru entities and individuals may be required to make estimated payments if tax is due. Entities may use the form PTE-V to make payments. Individuals use Form 40ES

Estimated payments for calendar year business’ are due by the 15th day of April, June, September, and December. Fiscal year business’ estimated payments are due on the 15th day of the 4th, 6th, 9th, and 12th month of the fiscal year. 

Form PTE-V: https://revenue.alabama.gov/wp-content/uploads/2017/07/fptev.pdf

Estimated payments for individuals are due on the 15th day of April, June, September, and January following the end of the tax year. 

Form 40ES: https://revenue.alabama.gov/wp-content/uploads/2018/01/18f40es.pdf

Filing An Extension

If a file extension has been granted on the federal level, it will also be extended for Alabama purposes. Taxpayers who have requested an extension will also need to send a copy of Federal form 7004 along with their Alabama return. This extension only applies to the filing of the return, and does not apply to the actual payment.

For Individuals, a 6 month extension is automatically granted. This does not grant an extension to pay the tax due. Taxpayers who expect to owe will need to make a payment with a payment voucher - Form 40V: 

https://revenue.alabama.gov/wp-content/uploads/2018/01/f40v.pdf

Penalties

S corporations and individuals that fail to file their return by the due date are subject to a penalty of 10% of the tax due, or $50, whichever is greater. Tax amounts not paid by the due date are subject to a 1% penalty per month up to 25%. 

Additional Information

If your business was formed or is located in another state, but generates income in Alabama, it may be subject to Alabama taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.

Alabama Department of Revenue: 

https://revenue.alabama.gov/

Alabama Secretary of State:

https://sos.alabama.gov/sos-office

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