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When starting or expanding your small business, obtaining appropriate business licenses and filing for taxes is a tedious but extremely important process. Often, different business licenses may be required from city and county levels. Additionally, taxes must be filed at the federal, state, county, and city levels. Because of the complexity of the process, licensing and tax information should be given particular attention.

Alabama Income Tax Withholding Number

All businesses in Alabama that hire employees and pays wages must file with the State of Alabama to obtain an Alabama income tax withholding number. Learn more about Withholding tax account numbers at the Alabama Department of Revenue’s website.

Alabama Occupational Licenses

Some businesses require a state/county business license. Check with the city to determine if a city license is required. Multiple licenses may be required based on your business operations. If your industry is regulated by a board, commission, association, etc., you may be required to present their certification prior to receiving the state/county business license.

Alabama Sales Tax Number

All businesses in Alabama that sell personal property to a user and collects sales tax must have an Alabama Sales Tax Number. For more information on acquiring an Alabama Sales Tax Number and/or Alabama state tax reporting go to the Alabama Department of Revenue’s website. The Alabama Business Tax Online Registration System is located here.

City and County Business Forms

City and County business forms can be obtained from your local city and county business license office. To find your County website, Small Business Development Center, Taxpayer Service Center, Business License office(s), and Chamber(s) of Commerce in your area, please visit the appropriate County Directory for the county you are interested in or Municipal Directory to access specific town or city business forms.

City and County Tax Rates

All city and counties have different tax rates across the State of Alabama. You can enter the city and county you will be opening a business to see the tax rates via the Alabama Department of Revenue’s website.

Federal Taxes

Employers are required to withhold federal income taxes, Social Security, and Medicare taxes. There are several factors that determine how much federal income tax a business must withhold. The federal government levies four basic types of business taxes: Income tax, self-employment tax, taxes for employers, and excise taxes. To learn more about these taxes please visit the IRS guide to business taxes. More information can be found by reading this publication.

Income Tax

All businesses except partnerships must file an annual income tax return. Partnerships file an information return (1065 form). Which form you use depends on how your business is organized. Income Tax broken down by business entity:

Refer to the Employer’s Tax Guide for more information. The following forms are usually required when withholding income tax.

Obtaining an Employee Identification Number (EIN)

All businesses must have an Employer Identification Number (EIN). An EIN is also known as a Federal Tax Identification Number, and is used to identify a business entity. You may apply for an EIN in many different ways. To get started you can use the EIN Helpful Steps guide or proceed below:

      • Apply Online – You can apply for an EIN online without filling out a SS-4 from. The online assistant will ask you the questions and you give us the answers. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your EIN confirmation notice. Apply here.
      • Apply by Fax – You can download this form and fax your completed SS-4 form to 215-516-3990
      • Apply by Mail – You can download this form and mail your completed form to:

Internal Revenue Service Attn: EIN Operations Philadelphia, Pennsylvania 19255

      • Apply by Phone – International applicants may call 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Social Security and Medicare Taxes (FICA)

Employers generally must withhold part of social security and Medicare taxes from employees’ wages and you pay a matching amount yourself. If you would like to figure out how much tax to withhold, use the methods described in the IRS’s Employer’s Tax Guide and Employer’s Supplemental Tax Guide. Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status. You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee.

What is Rental Tax?

Rental tax is levied in the same manner as the State rental tax; these rates vary. Local rental tax is due monthly with returns and remittances to be filed on or before the 20th day of the month for the previous month’s rentals. However, a taxpayer may elect to file and pay state-administered local rental tax quarterly when the total state rental tax for which the taxpayer is liable averages less than $200 per month during the preceding calendar year. The election to file and pay quarterly shall be made in writing to the Alabama Department of Revenue no later than February 20 of each year. ONE SPOT provides a streamlined system where taxpayers can file and remit sales, use, and rental tax for all cities and counties, and the state.

What is Sales Tax?

Sales Tax is a privilege tax imposed on the retail sale of tangible personal property sold in Alabama by businesses located in Alabama. The tax is collected by the seller from their customer and remitted directly to the state. All sales of tangible personal property are retail sales except those defined as wholesale sales. ONE SPOT provides a streamlined system where taxpayers can file and remit sales, use, and rental tax for all cities and counties, and the state. For more information visit the Department of Revenue’s website.

What is Use Tax?

Use tax is the counterpart of sales tax. It is applied when merchandise is purchased outside of Alabama and imported into the state. The use tax applies to the same merchandise that is taxable under the Alabama sales tax law. This includes all tangible personal property that is purchased at retail and brought into Alabama for storage, use, or consumption unless it is specifically exempted by law. The use tax rate is the same as the sales tax rate. ONE SPOT provides a streamlined system where taxpayers can file and remit sales, use, and rental tax for all cities and counties, and the state. For more information visit the Department of Revenue’s website.