Good news for marketplace sellers! The state of Alabama now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Walmart or Etsy.
This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Alabama buyers on your behalf, and remit it to the state.
But as usual, there are always a few wrinkles here when it comes to eCommerce sales tax.
This post will explain what online sellers need to know about the Alabama marketplace facilitator law, and answer your frequently asked questions.
Overview of the Alabama Marketplace Facilitator Law
Alabama’s marketplace facilitator law states that any marketplace with sales over $250,000 into the state must collect sales tax by or on behalf of its third-party sellers.
Quick Facts about the Alabama Marketplace Facilitator Law
- Effective date: January 1, 2019
- Threshold: The Alabama law states that marketplace facilitators with marketplace sales over $250,000 must collect sales tax by or on behalf of its third-party seller. Additionally, remote sellers who exceed the economic nexus rule’s $250,000 small seller exception should register for the Alabama Simplified Sellers Use Tax Program (SSUT) and begin collecting no later than October 1, 2018.
- State law information: Read the full text of the Alabama Department of Revenue
- Marketplaces that have adopted this law:
Frequently asked Questions about Marketplace Facilitator Laws
Does this mean I can stop collecting Alabama sales tax?
It depends. Every business’s sales tax situation is unique to that business.
Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Alabama.
Example #1: You only make sales on online marketplaces.
In this example, you only sell on Amazon and eBay. Because Amazon and eBay are both now collecting sales tax from buyers on your behalf, you are not required to collect sales tax from your buyers. (Good news! Alabama also allows you to cancel your sales tax permit and stop filing sales tax if you only sell through marketplaces. See “Does this mean I can cancel my Alabama sales tax permit?” below.)
Example #2: You sell on online marketplaces and your own online store and/or brick and mortar store.
In this case, you’d still be required to collect sales tax from buyers who purchase from you through your own online store (for example, via your BigCommerce or Shopify store). And you would still be required to collect sales tax from your brick and mortar customers.
Marketplace facilitator laws only cover marketplaces. The state still requires that merchants collect sales tax from buyers via sales channels where the marketplace facilitator laws do not apply.
Does this mean I can cancel my Alabama sales tax permit?
According to the Alabama Department of Revenue, if you are registered to collect sales tax in Alabama and only make marketplace sales in Alabama, you are eligible to cancel your sales tax permit and stop filing Alabama sales tax returns.
To do this, call the state’s sales tax department at 334-242-1490 to cancel any unneeded permits.
Do I still need to file an Alabama sales tax return?
If you only sell via marketplaces, Alabama does not require that you hold a current Alabama sales tax permit. Once you have closed out your Alabama sales tax permit, you are no longer required to file Alabama sales tax returns.
Just be sure that you close out your Alabama sales tax account by calling 334-242-1490. If you just stop filing without closing your account, you can face penalties.
Also keep in mind that if you have sales tax nexus in Alabama and make non-marketplace sales (i.e. through your own online store, or in-person sales) then you are still required to hold a valid Alabama sales tax permit and collect Alabama sales tax.
What do I do with any Alabama sales tax I have already collected?
If you have already collected Alabama sales tax from buyers, it is vital that you remit that amount to the state. The only way to get in serious criminal trouble in sales tax is to collect sales tax from buyers on the state’s behalf but keep it in your own pocket.
Let’s say you sell on Walmart’s marketplace and Alabama requires you to file and remit sales tax quarterly. Though Walmart began collecting sales tax on your behalf on January 1, 2019 if you had any sales tax in your bank account that you collected from Q4 2018, you would still have been required to remit that to Alabama’s Department of Revenue or face a penalty.
I still need to file sales tax in Alabama. Does TaxJar handle this for me?
TaxJar AutoFile Handles Alabama Sales Tax Automatically
TaxJar AutoFile automatically compiles your sales tax data the way the state of Alabama wants it filed. For example, many states, Alabama included, want sellers to break down their sales tax collected interstate (sales originating in Alabama sent to another state) and intrastate (sales made from Alabama to Alabama.)
If you currently AutoFile your Alabama sales tax returns, you don’t need to do a thing. It’s handled!
TaxJar Reports Give You all the Info You need to File Manually
If you prefer to file manually, your TaxJar Reports also reflect what the Alabama Department of Revenue wants to see on your tax return.
Also don’t worry that you will double pay. TaxJar accounts for sales tax collected on your behalf by marketplaces, and only shows you the amount you owe to the state out of your pocket.
Further reading on Alabama sales tax and marketplace facilitator laws:
- TaxJar’s Marketplace Facilitator FAQ
- State by State: Marketplace Facilitator Laws Explained
- Alabama Sales Tax Guide for Businesses
Do you have questions or something to say about the Alabama marketplace facilitator law? Start the conversation in the comments!