All real and personal business property will be assessed at 20% of its fair market value. For example, for property with a fair market value of $1 million, the assessed value would be $200,000. The combined state and local millage rate would then be applied to the assessed value.
State millage rate on both real and personal property is 6.5 mills (3 mills for education, 1 mill for relief and 2.5 mills for general uses). This rate is equivalent to a tax of $6.50 for every $1,000 of assessed value. However, both cities and counties may levy millage rates in addition to the state’s 6.5 mills. These local rates vary, but the average rate statewide is 42 mills, including the state’s 6.5 mills.
For real and personal business property with a fair market value of $1 million, the average property tax would be only $8,400.
SALES AND USE TAX
Sales and Use Tax Rate Differentials
- State sales and use tax general rate: 4%
- State sales and use tax rate for manufacturing and farm machinery: 1.5%
- In addition to state taxes, most cities and counties levy their own sales and use taxes, which provide similar rate differentials
- Corporate rate of income taxation is limited to no more than 6.5%
- Corporate taxpayers can deduct from their gross apportioned and allocated Alabama income, the full apportioned Alabama amount of federal income taxes paid
BUSINESS PRIVILEGE TAX
The business privilege tax is an annual tax paid by corporations and limited liability entities (including disregarded entities) for the privilege of conducting business in Alabama. The tax base is the taxpayer’s net worth apportioned to Alabama. For business entities new to Alabama, the tax accrues as of the date of organization, qualification or beginning to do business, and is due 30 days thereafter. The tax for existing entities accrues as of Jan. 1 of every taxable year, and is due March 15.
- Business Privilege Tax Rate
The tax rate for business privilege tax is graduated, based on the entity’s federal taxable income apportioned to Alabama. The rates range from 25 cents to $1.75 for each $1,000 of net worth in Alabama. The minimum tax is $100.
- Business Privilege Tax Cap
The maximum business privilege tax for most business entities is $15,000. The exceptions are for financial institutions, financial institution groups and insurance companies that have a maximum business privilege tax of $3 million.