• Alabama and its counties and municipalities impose retail sales taxes.tax defined image by Christopher Walker from Fotolia.com
  
  Alabama is one of many states that levy sales taxes on the retail sale of tangible personal property within the state. Counties and municipalities within Alabama also charge a sales tax as well. The laws and regulations regarding sales taxes in Alabama are governed by Title 40, Chapter 23, Article 1 of the Code of Alabama.
  
  

Alabama Sales Tax Rates

• The state portion of the sales tax in Alabama varies based on the item involved. This currently ranges from 1.5 percent for farm and manufacturing machinery up to 4 percent for general items. Automotive vehicles are subject to a 2 percent sales tax by the state.
  
  

Exempt Entities

• Most nonprofit organizations and churches in Alabama are not exempt from sales taxes, and must collect sales taxes and file the appropriate returns. There are, however, more than 100 charitable and nonprofit organizations that are exempted by statute. These include Alabama Goodwill Industries Inc., Birmingham Civil Rights Institute Inc. and the Boy Scouts of America.
  
  

Exempt Items

• Certain items are exempt from sales taxes in Alabama. These include prescription drugs, gasoline and motor oil, fertilizer if used in agriculture, feed for livestock and chicken, and sales made to the U.S. government or the state of Alabama and state agencies. Unlike many other states, Alabama does not exempt groceries from sales tax.
  
  

Payment of Sales Taxes

• Section 41-1-20 of the Code of Alabama requires all payments of sales taxes of $750 or more to be made by electronic funds transfer (ETF). The state encourages businesses that are remitting less than $750 to voluntarily comply and use the ETF system. All sales tax returns must be filed electronically as well.
  
  

Local Tax Rates

• Counties and municipalities in Alabama also charge a sales tax in addition to the state rate. In some areas, the combined state, city and county general sales tax rate tops 10 percent. The state maintains a list of all local sales tax rates and publishes the rates monthly on its website.
  
  

Failure To Pay

• Businesses that fail to make timely payments to the Alabama Department of Revenue are subject to a 10 percent penalty or $50, whichever is greater, of the tax due. Interest is also charged on balances due under Section 40-1-44 of the Code of Alabama. The interest rate for 2010 is 4 percent per year. The historical rate has been as high as 10 percent.