Alabama Income & Tax for eCommerce Businesses
At Tall Oak Advisors, Alabama comes up frequently in our reviews because the higher nexus threshold gives sellers a false sense of security — and the local tax complexity catches them off guard once they do register.
💡 $250,000 Threshold — Higher Than Standard, But Still Enforced: Alabama's economic nexus threshold for sales tax is $250,000 — more than double the standard $100,000 used by most states. However, Alabama enforces this threshold actively and combines it with one of the most fragmented local sales tax structures in the country. Additionally, FBA inventory in Alabama creates physical nexus regardless of the $250,000 threshold — physical nexus triggers obligations immediately.
Part 1: Alabama Corporate Income Tax
Alabama imposes a flat 6.5% corporate income tax on C corporations with nexus in the state. The tax is administered by the Alabama Department of Revenue and applies to net income apportioned to Alabama.
Pass-through entities — S corporations, LLCs, partnerships — are generally not subject to Alabama corporate income tax at the entity level. Their income passes to owners, who pay Alabama's individual income tax rates.
Factor Presence Nexus for Corporate Income Tax
Alabama uses a factor presence standard for corporate income tax nexus that is separate from the sales tax threshold. An out-of-state corporation has corporate income tax nexus in Alabama when any of the following are exceeded during the year:
Sales in Alabama exceeding $538,000 (or 25% of total sales)
Property in Alabama exceeding $54,000 (or 25% of total property)
Payroll in Alabama exceeding $54,000 (or 25% of total payroll)
Physical presence: employees, property, or FBA inventory in Alabama creates immediate nexus regardless of dollar amounts
Key distinction: You can trigger Alabama corporate income tax nexus at $538,000 in sales without crossing the $250,000 sales tax threshold — and vice versa. These are two independent systems with two different thresholds.
PL 86-272 in Alabama
Federal Public Law 86-272 protects C corporations from Alabama corporate income tax when their only Alabama activity is soliciting orders for tangible goods approved and shipped from outside Alabama. FBA inventory in Alabama warehouses, employees performing non-solicitation activities, and service activities all eliminate this protection.
Part 2: Alabama Sales Tax — The $250,000 Threshold and the SSUT Option
Economic Nexus Threshold
Alabama's economic nexus threshold for sales tax is $250,000 in retail sales to Alabama customers in the previous calendar year. Key details:
Revenue only — no transaction count threshold
Based solely on the prior calendar year — not the current year (similar to Michigan and Florida)
Threshold includes direct retail sales — taxable and nontaxable — but excludes wholesale and marketplace-facilitated sales
Marketplace sales count toward your threshold for determining whether you've crossed $250,000, even though the marketplace collects the tax
Example: $200,000 through Amazon FBA + $60,000 through Shopify = $260,000 combined → threshold exceeded. You must register to collect on your $60,000 in direct sales, even though Amazon collects on the FBA portion.
The SSUT Program: Alabama's Remote Seller Simplification
Alabama offers a unique option for remote sellers: the Simplified Sellers Use Tax (SSUT) program. Instead of navigating Alabama's complex multi-jurisdictional local tax landscape, eligible remote sellers can elect to collect and remit a flat 8% simplified rate on all Alabama sales — covering state and local obligations in one payment.
The SSUT is voluntary and available to out-of-state sellers who have no Alabama physical presence beyond economic nexus. It trades rate accuracy for administrative simplicity. For sellers with primarily small-basket consumer transactions, this is often an attractive option. For sellers with large-value wholesale or business-to-business transactions, the flat 8% may not be cost-effective, and traditional registration may be preferable.
Alabama's Traditional Sales Tax: A Local Rate Maze
If you choose traditional registration instead of SSUT, you'll encounter Alabama's layered local tax structure:
State base rate: 4%
County rates: typically 1%–2%
City/municipal rates: 2%–5% in many areas
Combined rates: 5%–11% depending on location — some rural areas are on the lower end, while cities like Birmingham and Mobile can approach 10%
This is why the SSUT program at 8% flat is popular — it's predictable and avoids the need to look up rates for hundreds of local jurisdictions.
FBA Sellers and Alabama
Amazon operates fulfillment centers in Alabama, including facilities in the Birmingham area. FBA inventory creates immediate physical nexus for sales tax (and corporate income tax for C corps) regardless of whether you've crossed the $250,000 economic nexus threshold. If you store FBA inventory in Alabama, the threshold is irrelevant — you have nexus and must register.
What About Sales Tax?
Alabama's $250,000 threshold is higher than most states, but the SSUT program's 8% flat rate and the FBA physical nexus rules create important compliance considerations regardless of your sales volume.
At Tall Oak Advisors, we put together this guide as a resource for our eCommerce community. Tax rules vary significantly from state to state, and we want sellers to have the information they need to make informed decisions. More info at talloakadvisors.com
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. Tax laws change frequently. Consult a qualified tax advisor or CPA regarding your specific situation.
Sources: Ala. Code § 40-18 (Corporate Income Tax); Ala. Code § 40-23 (Sales Tax); Alabama DOR — Remote Seller Guidance (eff. Oct. 1, 2018); Simplified Sellers Use Tax (SSUT) Program; Factor Presence Nexus Standards; Pub. L. No. 86-272.
