Alabama Corporation Taxes
Alabama corporations pay a 6.5% corporate income tax, an annual Business Privilege Tax, and state sales tax. Learn what each tax covers, when it's due, and how C Corps and S Corps are taxed differently.
Bizee Editorial Staff
Editorial Team
Alabama corporation tax at a glance
Filing fee: $230 (domestic corporation formation fee paid to the Alabama Secretary of State)
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State agency: Alabama Department of Revenue (ADOR); Alabama Secretary of State
Annual report due: Eliminated effective October 1, 2024 — Alabama corporations no longer file an annual report with the Secretary of State
State tax rate: Corporate income tax: 6.5% flat rate on Alabama taxable income. Business Privilege Tax: $0.25–$1.75 per $1,000 of taxable net worth. State sales tax: 4% (local rates add up to 10–11% combined in some jurisdictions).
Alabama corporation tax overview
Alabama corporations pay 3 main state taxes: a 6.5% flat corporate income tax on Alabama taxable income, an annual Business Privilege Tax based on net worth, and a 4% state sales tax on retail sales of tangible personal property. C Corps and S Corps are taxed differently, and the Business Privilege Tax applies to both.
Corporate income tax: 6.5% flat rate, filed with the Alabama Department of Revenue by the 15th day of the 4th month after the close of the tax year
Business Privilege Tax: $0.25–$1.75 per $1,000 of taxable net worth in Alabama, due annually
Sales and use tax: 4% state rate plus local rates — combined rates can reach 10–11% in some areas
Withholding tax: required if your corporation has employees in Alabama
Annual report: eliminated effective October 1, 2024 — no longer required
Alabama corporate income tax
Alabama taxes C Corps at a flat 6.5% rate on Alabama taxable income — the portion of federal taxable income apportioned to Alabama, adjusted for state-specific additions and subtractions. One notable adjustment: Alabama allows a full deduction for federal income taxes paid that are apportioned to Alabama, which lowers the effective tax burden below the nominal 6.5% for many corporations.
Returns are due by the 15th day of the 4th month after the close of the taxable year. Alabama allows extensions to file, but an extension doesn't extend the time to pay any tax owed — you'll need to pay what you estimate you owe by the original deadline to avoid interest.
S Corps work differently. Because an S Corp passes income through to shareholders, the corporation itself doesn't pay Alabama corporate income tax on that income. Instead, shareholders report their share of income on their individual Alabama returns and pay tax at the individual rate. Alabama does still subject S Corps to the Business Privilege Tax.
Alabama Business Privilege Tax
Every Alabama corporation — C Corp and S Corp alike — pays an annual Business Privilege Tax for the privilege of doing business in the state. This is separate from income tax. The rate ranges from $0.25 to $1.75 per $1,000 of taxable net worth in Alabama, with the specific rate tied to the corporation's federal taxable income apportioned to Alabama.
Taxable net worth starts from the entity's net worth, adjusted by Alabama-specific additions and subtractions, then multiplied by the Alabama apportionment factor. If a corporation's Alabama-apportioned taxable income is less than $1, the minimum rate of $0.25 per $1,000 applies. A tax professional can help you figure out the right rate tier for your corporation's situation.
One thing that catches people off guard: Alabama eliminated the separate annual report requirement for corporations effective October 1, 2024, along with the $10 annual report fee. The Business Privilege Tax return is still required — that's a separate filing.
Alabama sales and use tax
If your Alabama corporation sells tangible personal property at retail, you need to collect and remit Alabama sales tax. The state rate is 4%, but local counties and municipalities add their own rates on top — combined state and local rates can reach 10–11% in some areas. Alabama's sales tax is a privilege tax on the act of selling, not a tax on the buyer.
Most services aren't taxable in Alabama unless the law specifically says they are. Sales tax generally applies to tangible goods. If you're unsure whether your product or service is taxable, the Alabama Department of Revenue's sales tax guidance is the right place to check — or talk to a tax professional.
Withholding and payroll taxes
If your Alabama corporation has employees, you're required to withhold Alabama state income tax from their wages and remit it to the Alabama Department of Revenue. You'll need to register for a withholding tax account with ADOR before you start withholding.
Withholding returns and deposits follow a schedule ADOR assigns based on how much tax you withhold — monthly or quarterly are common. At year end, you'll file Form A-3 (Annual Reconciliation of Alabama Income Tax Withheld) and submit W-2s and any applicable 1099s by January 31.
Federal taxes for Alabama corporations
On top of Alabama state taxes, your corporation owes federal taxes to the IRS. C Corps pay federal corporate income tax at a flat 21% rate on taxable income. S Corps pass income through to shareholders, who report it on their individual federal returns — the corporation itself doesn't pay federal income tax on that income.
Most corporations also need to pay estimated taxes quarterly to the federal government. If your corporation expects to owe $500 or more in federal tax for the year, estimated payments are generally required. Getting this wrong can mean underpayment penalties on top of the tax owed. A tax professional can help you figure out the right payment schedule for your situation.
FAQ
Alabama's corporate income tax rate is 6.5% — a flat rate applied to Alabama taxable income. That's different from a graduated rate, so the same percentage applies regardless of how much the corporation earns. Alabama also allows a deduction for federal income taxes apportioned to Alabama, which lowers the effective rate for many corporations below the nominal 6.5%.
Yes. Alabama's Business Privilege Tax functions as its franchise tax. Every corporation doing business in Alabama pays it annually, at a rate of $0.25 to $1.75 per $1,000 of taxable net worth in Alabama. The specific rate depends on the corporation's Alabama-apportioned federal taxable income. Both C Corps and S Corps owe this tax.
An Alabama S Corp doesn't pay corporate income tax at the entity level. Income passes through to shareholders, who report it on their individual Alabama returns and pay tax at the individual rate. The S Corp does still owe the annual Business Privilege Tax based on its Alabama taxable net worth. Talk to a tax professional to figure out the right structure for your situation.
Yes. Alabama's state sales tax rate is 4% on retail sales of tangible personal property. Local counties and municipalities add their own rates on top, so the combined rate can reach 10–11% depending on where your business operates. Most services aren't taxable unless Alabama law specifically says they are. Register with the Alabama Department of Revenue before you start collecting sales tax.
No. Alabama eliminated the annual report requirement for corporations effective October 1, 2024, under Act No. 2024-213. The $10 annual report fee was also eliminated. Alabama corporations no longer file a separate annual report with the Secretary of State. The Business Privilege Tax return is still required — that's a separate filing with the Alabama Department of Revenue.
Yes, in most cases. If your corporation expects to owe $500 or more in federal income tax for the year, quarterly estimated payments to the IRS are generally required. Alabama also has estimated tax payment requirements for corporations. Not paying enough on time can mean underpayment penalties on top of the tax owed. A tax professional can help you figure out the right payment schedule.
It depends on whether the corporation has substantial nexus in Alabama. For tax years beginning on or after January 1, 2025, a nonresident corporation crosses the threshold if it has more than $68,000 of property in Alabama, more than $68,000 of payroll in Alabama, more than $675,000 of sales assigned to Alabama, or at least 25% of its total property, payroll, or sales in Alabama. Once those thresholds are met, Alabama corporate income and Business Privilege Tax apply.
