In this Article, we will give you a snapchat of the legal compliance requirement and associated fees required to register Limited Liability Company (LLC) in Alabama and most importantly, maintain the status of an LLC, especially as a small business e-commerce start up.
In the United States, LLCs are registered on the state level, therefore their business can register an LLC in any of the 50 States in the United States, including Washington DC.
You can check out our recommendation for the best states in the US to register your LLC as a small business e-commerce start-up, if you want to pay less State fees, less State imposed taxes and do less periodic paperwork in order to maintain your LLC.
In this Article, our focus is on Alabama LLC. What cost should you expect to pay when you register an Alabama LLC? What periodic filings requirements are imposed on Alabama LLCs? What State taxes are levied on e-commerce small business start ups in Alabama and what are the tax rates? What business permits are required to be obtained by e-commerce businesses in Alabama, what’s the cost of these permits and are there any renewal requirements?
This Article presents you a snapshot, so you know what fees and legal compliance requirements to expect if you want to register an LLC for your e-commerce small business start up in Alabama, operate with the required licences and maintain your LLC status.
Business registration and compliance on Alabama
- LLC Registration cost; the state fee for registering an LLC in Alabama is $236. You can register your Alabama LLC with Bizee for a service charge of $0 + the State fee.
- LLC registration Publishing requirement; No, LLCs in Alabama are not required to publish their registration in a local newspaper.
- Has the Option to register as an Anonymous LLC; Yes, LLCs in Alabama have the option to register as an anonymous LLC. This means that the LLC can be registered without putting the names and personal details of the LLC Owners on public record of the State.
- DBA requirement; In Alabama DBA is optional, if your LLC is operating under a different name than your LLC registered Business name. In Alabama DBA is referred to as “Trade name”. Cost of registering a Trade name in Alabama is $30, the Trade name length of approval is 5 years. You can register a trade name in Alabama online or outsource the registration of your Alabama DBA (if needed) to Bizee
- Annual report filing requirement; yes, Alabama LLCs have annual report filing requirements. The cost of filing annual report is $50
Alabama LLCs engaged in business within the state are obligated to submit Annual Reports, known as Business Privilege Tax Returns and Annual Reports, on an annual basis.
The Business Privilege tax, previously set at $100, was reduced to $50 for the 2023 tax year. This adjustment means that any owed amount up to $100 requires a payment of $50.
You can file the Alabama Annual Report yourself, you’ll need to visit the Alabama Department of Revenue website or you can outsource the filling of your annual returns to Bizee for a $99 service charge.
Annual Franchise tax filing and compliance in Alabama
- State Franchise tax requirement; No, LLCs are not required to pay Franchise tax in Alabama.
Annual State income tax filing and compliance in Alabama
- State income tax rate; Alabama features a progressive individual income tax system, spanning rates from 2.00 percent to 5.00 percent. Additionally, certain jurisdictions levy local income taxes. The state imposes a 6.50 percent corporate income tax rate.
- Who files State income tax; LLCs by default are passed through entities meaning that tax obligation passes through to the individuals who own the LLC. Therefore an LLC with a default tax status pays the individual state income tax. Interestingly, if the individuals behind the LLC are not resident in the state and do not have state source income (a dependent agent in the state), then they are not required to pay “individual State income tax”.
If the LLC owners are resident in the State or have State source income (a dependent agent in the state), then the LLC Owners are required to pay “individual State income tax”.
If the LLC has elected to be taxed as a corporation (C-corp), then the LLC is required to pay “Corporate State income tax”.
- How to file state income tax; You can file your Alabama State income tax by yourself. You will need to visit the State website. Alternatively, we recommend using the Service of a Certified Public Accountant (CPA), through H&R Block to file your state income tax.
Periodic Sales tax filing and compliance in Alabama
- Sales tax rate; Alabama imposes a 4.00 percent state sales tax rate, with a maximum local sales tax rate of 7.50 percent. The average combined state and local sales tax rate in Alabama stands at 9.25 percent.
- Sales tax nexus; Sales tax nexus is the state-defined threshold between a Seller and a state, which when reached makes it obligatory for the Seller to register for a Seller permit in the state, charge sales tax to customers in the state and remit the sales tax to the State Government.
Generally, there is the “physical sales tax nexus” and “economic sales tax nexus”.
Physical sales tax nexus is reached when the Seller had physical presence in the state (i.e have an office address, a warehouse etc).
In most States, “economic sales tax nexus” is reached when a Seller makes up to 200 transactions or $100,000 in sales in a State.
It’s important to note that, when you register your LLC in the State of Alabama (which generally requires that you have a registered business address in Alabama), you automatically meet the physical sales tax nexus and will be required to obtain a Sales tax permit in Alabama, charge applicable sales tax rates to customers in Alabama and remit sales tax to the Alabama State Government.
- Sales tax permit; It costs $0 to register for an Alabama sales tax permit, the sales permit must be renewed annually.
- Reseller/Resale Certificate; Businesses who purchase products from their suppliers for the purpose of reselling those products to their customers can make sales tax free purchases from their suppliers if they have a resale certificate.
This means that Resale businesses can get cheaper product prices from their suppliers (that is product prices without sales tax included) which can help these Businesses have a higher profit margin and/or maintain competitive selling prices to their Customers.
Generally, suppliers will charge the sales tax rate applicable in the State where the product is to be delivered unless the business presents to the supplier a Resale Certificate (also called a Reseller Certificate).
The Resale certificate must be valid and acceptable in the state where the product is to be delivered.
Businesses can present any of the below listed Resale certificates to suppliers if they want to make sales tax free purchases for product delivery to an Alabama address.
- Alabama Sales tax permit (this used as the official Reseller certificate in Alabama)
- Alabama| Form ST: EX-A1 (This is an alternative Resale form used by businesses who are not required to have a sales tax licence under the provisions on the Alabama sales tax Act i.e charities)
- MTC Uniform Sales & Use Tax Resale Certificate. (The MTC form serves as a uniform resale certificate for various states, streamlining the process by replacing the need for multiple state-specific resale forms when dealing with your supplier.)
Note; Alabama does not accept out of State Seller ID.
This means that Out-of-State Resale Businesses seeking sales-tax-free purchases in Alabama must have an Alabama Seller ID ( i.e Register for an Alabama Sale Tax Permit and have an Alabama Sales Tax permit ID or register Alabama Form ST: EX-A and have the Seller exemption ID number). If they choose to use the MTC uniform resale certificate and wish to indicate Alabama as the resale state, they must furnish their Alabama Seller ID on the MTC form.
Note that; If you are a dropshipping and want to make sales tax free purchases from your supplier for products dropshipped to customers in Alabama, you maynot need to provide your supplier with an Alabama resale certificate.
“This is because Alabama views dropshipping as two separate transactions. The transaction between the vendor/dropshipping supplier and dropshipping reseller is one transaction, and the transaction between the dropshipping reseller and the Alabama customer is a separate transaction.
Suppose the dropshipping Reseller operates from another state in the US and has a Resale permit issued in his home state, It’s Alabama’s stance that the Dropshipping Supplier should accept the Dropshipping Reseller’s home-state issued Resale certificate, when the Dropshipping reseller is purchasing to resell to a customer located in Alabama (drop-shipped to an Alabama address).”
You can learn more on what guidance is there for vendors dropshiping into Alabama and remote sellers on the webpage of the Alabama department of revenue.
In Alabama, there is a requirement to renew a Reseller Certificate annually.
Conclusion
This Article shows you a snap short of the legal fillings and compliance requirements for LLCs that are registered in Alabama, specifically for LLCs that want want carry on the business of selling and especially for small e-commerce start up LLCs that are registered in Alabama.
If you are wondering what might be the best State in the United States to register your small business (especially if you are a reseller or an e-commerce business), we have written this Article, where we go over our most recommended states for registering a business in the United States, if you want to pay less LLC filling and legal compliance fees, if you want less state imposed taxes and if you want to do less periodic legal paperwork required to maintain your LLC status.
