Sales tax on invoices in Alabama

In Alabama, a contractor who improves real property uses or consumes the building materials it affixes rather than reselling them, so it pays sales tax to its vendor, or use tax to the Department of Revenue, when it buys them.

Sales tax and the Sales Tax License

Alabama’s sales tax is a privilege tax on the retail sale of tangible personal property sold in Alabama by businesses located there. The seller collects it from the customer and remits it directly to the state. Alabama officially calls a resale certificate a Sales Tax License; you print a copy of yours from your tax account in MAT.

Contractors consume their building materials

For sales and use tax, a contractor is anyone who contracts to make additions, alterations or improvements to real property. The Department deems contractors not to be reselling the building materials they buy and affix to realty, but to be using or consuming them. So you pay sales tax to the Alabama vendor when you buy materials for construction, repair or alteration of real property, or pay use tax directly to the Department on purchases from out-of-state vendors that don’t collect it.

Under the Department’s rules, you pay sales or use tax on:

• all the materials, equipment, tools and supplies you use or consume in your business; and
• all the building materials you attach to real property, except property that qualifies for a specific exemption.

The rule’s list of building materials includes plumbing supplies and fixtures, pipe, electric cable, electrical fixtures, roofing materials, sprinkler systems, and air conditioning and heating systems. A device or appliance built in or attached so that removing it would substantially damage or deface the structure is a fixture, part of the real property; where removal wouldn’t, the rule weighs further factors, such as how it’s connected and whether it serves the property’s use.

Government projects: tangible personal property to be incorporated into realty under a contract awarded on or after January 1, 2014, with a governmental entity as rule 810-6-3-.77 defines it, is exempt from state, county and municipal sales and use taxes if the contractor or subcontractor complies with that rule. Each contractor and subcontractor must apply for its own certificate of exemption, and certificates aren’t transferable.

Labor on goods: billed separately, or taxed

For tangible personal property, Alabama’s rules and the Department’s B.E.S.T. guide treat labor by what it does:

• Repair labor, restoring someone else’s existing property without producing new parts, isn’t taxable when it’s shown as a separate line item on the invoice. With repair parts, only the parts are taxable, provided parts and labor are billed separately.
• Installation labor that’s a condition of a sale isn’t taxable if it’s broken out as a separate item. If it’s included in the total, the whole amount is taxable.
• Fabrication labor, making a new or different item, is taxable even when billed separately. On custom or made-to-order items, labor can’t be deducted.

Your invoice: the tax as its own line

On your retail sales, such as goods or repair parts, rule 810-6-4-.20 makes it the seller’s mandatory duty to add the tax to the sales price and collect it from the customer. Whenever practical, add the sales tax as a separate line item. If the invoice or receipt doesn’t separately state the tax, Alabama presumes you didn’t charge or collect it, and your gross receipts are the measure of the tax due. You may not advertise or tell customers that you’ll assume or absorb the tax.

Any sales tax you over-collect must be paid to the state, unless it comes only from rounding the correct tax up to the nearest cent (§40-23-26(d)).

On a contract to improve real property, you don’t resell the building materials you affix: you consumed them and paid their tax when you bought them, as above.

Beginning September 1, 2026, a credit card transaction fee, charged on debit or credit card purchases to offset the interchange fees a seller pays, isn’t subject to sales or use tax if it’s separate and identifiable from your other charges. If the receipt shows only one total, such as $103, without clearly separating the fee, sales tax applies to the full $103.

Local taxes: not all run by the state

Sales and use tax rates vary across Alabama’s municipalities and counties, on top of the state tax. The Department administers over 200 city and county sales taxes, but not all of them, so contact every county and municipality where you do business to find out whether you must register with it to collect its tax. The Department publishes the rates of the local taxes it administers and of those it doesn’t, with a search by address. ONE SPOT is a single point of filing for state-administered local sales, use, rental and lodgings taxes and for non-state-administered sales, use and rental taxes.

A new or amended local levy takes effect on the first day of the third month after the Department receives proper notice of it.

Landscaping: planting improves the realty

Planting trees, floral products, shrubbery or other nursery stock on a customer’s real property, under a contract to furnish and plant them, isn’t a retail sale. The Department’s rule treats it as a contract for improvements to realty, and the landscaper as the user or consumer of what’s planted. If you keep no inventory and make no retail sales of nursery stock, pay the sales or use tax to your vendor when you buy the items for these contracts.