Sales and Use Tax Abatement

Sales and Use Tax. Machinery used for mining and manufacturing is taxed at 1 ½% of selling price.  Automobiles, both new and used, are taxed at 2% of net trade difference.  Sales and use tax is paid by all consumers, corporate or otherwise, on other materials at the rate of 4% on all items purchased within the state for consumption or use. 

 Incentives.  When property is imported from a state which has a reciprocal agreement with Alabama, and if a tax was paid in the other state, then such property will not be subject to Alabama tax.  If the amount of tax paid to the other state is less than the Alabama tax, then the difference must be paid to Alabama.  Counties and municipalities may impose a tax in addition to the state levy.

 Sales and Use Tax Abatement. State, county, and municipality abatement may be provided on all tangible property (non-educational construction related taxes, such as construction materials used to construct a facility and machinery and equipment placed in service at the facility) incorporated into an industrial project.  The abatement may be granted by the appropriate authority that has jurisdiction such as a municipality, industrial development board or authority, or county.   Eligible projects must be defined as any trade or business described in the 1987 Standard Industrial Classification major groups 20 to 39, inclusive, 50 or 51, Industrial Group number 737, or Industry numbers 0724, 4613, 8713, 8733, or 8734.  Existing companies that are expanding must constitute a major addition.  A major addition equals the lesser of 30 percent of the original cost of the industrial development property, or $2,000,000.   

 Application for Sales & Use Tax Abatement is made by completing the “Combined Application for Abatement of Taxes”.  An abatement must be granted before any purchase of equipment or construction materials can be made.

Vendor Discounts.  A discount is allowed if sales tax is timely paid.  The discount is 5% on the first $100.00 of tax due and 2% of all tax over $100.00.

 Exemption of Raw Materials.  Raw materials used by manufacturers or compounders as an ingredient or component part of their manufacturing or compounded product are specifically exempt from sales and use taxation.  Alabama Department of Revenue Regulations address the raw materials exemption.

 Pollution Control Equipment Exemption.  Equipment or materials purchased primarily for the control, reduction, or elimination of air or water pollution is exempt from sales and use tax. 

 Exemption for Quality Control Testing and Donations to Charitable Entities.  The withdrawal, use, or consumption of a manufactured product by the manufacturer thereof, for use in quality control testing or to be donated to certain charitable entities, shall not be subject to the state sales tax.

 Utility Gross Receipts Tax Exclusions.  Within the area of utility gross receipts taxes, Alabama law allows exclusions from the utility gross receipts tax and the utility service use tax for utility services used in certain types of manufacturing and compounding processes.  Alabama Department of Regulation provides more information on these exclusions.

 Exclusion for Poultry Houses.  The furnishing of natural gas or electricity for use or consumption as a fuel in and for the heating of poultry houses shall be exempt from the utility gross receipts tax.

 Questions may be directed to:

                        Alabama Department of Revenue

                        Sales and Use Tax Division

                        PO Box 327710

                        Montgomery, AL  36132-7710