On Tuesday, Alabama Governor Kay Ivey announced the implementation of a major tax reform initiative intended to help Alabama small businesses.
Effective October 1, 2023, more than 3,000 Alabama small businesses will no longer be required by the state to pay monthly estimated sales taxes to the state Department of Revenue.
“Alabama’s economy is anchored in the stability and prosperity of many thousands of hard-working small businesses,” said Gov. Ivey. “In my 2023 State of the State Address, I called on the Legislature to help lower the financial load shouldered by most small businesses, making it easier for them to thrive in a challenging national economy.”
The Legislature responded to the governor’s call by passing legislation, which Governor Ivey signed into law on June 9, 2023. The new law removes the monthly estimated sales tax requirement for businesses with less than $20,000 in average monthly sales tax liability – most Mom and Pop single proprietorships.
“I am pleased to report that this small business tax reform law, which will take effect October 1, is expected to positively affect over 3,000 Alabama small businesses,” said Ivey. “By freeing small businesses with less than $500,000 in monthly sales from having to pay estimated monthly sales taxes and allowing them to pay the taxes after the point of sale, they will experience greater cash flow and accordingly more flexibility to operate.”
As of October 1, 2023, affected small businesses will be required to pay sales taxes based on the previous month’s sales tax receipts, payable in monthly installments on or before the 20th of the month rather than paying the sales taxes before they collect them as they have been required to do for years.
According to the Alabama Department of Revenue, businesses’ monthly sales tax returns for calendar year 2022 will be reviewed to identify those affected by the new law. Those affected by the change in threshold will be notified by letter.
Businesses may contact the Alabama Department of Revenue’s Sales Tax Administration Section for more information.
House Bill 77 was sponsored by State Representative Danny Garrett (R-Trussville).
In recent sessions, the Legislature has also gotten rid of the business privilege tax and the business property tax for small businesses. This is part of a bipartisan effort by Gov. Ivey and the Legislature to make the state tax code more friendly for small and beginning businesses.
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