Thousands of Alabama retailers will have better cash flow and fewer accounting headaches in the future, thanks to legislation enacted in the Alabama Legislature’s 2023 regular session.
As of Oct. 1, Act No. 2023-422 by Rep. Danny Garrett, R-Trussville, will increase the threshold for submitting estimated monthly sales tax payments from $5,000 in average monthly state sales tax liability to $20,000 in average monthly sales tax liability. Read governor’s Sept. 26 news release.
Starting Oct. 1, only those with more than $500,000 in monthly sales, or $6 million in annual sales, will have to prepay taxes monthly, according to the Alabama Revenue Department. The Revenue Department estimates that an additional 3,100 small businesses will no longer have to prepay their sales taxes monthly. The department said businesses’ monthly sales tax returns for calendar year 2022 will be reviewed to identify those that are affected by the new law. Those who are affected by the change in threshold should have been notified by letter.
Businesses: Contact the Alabama Department of Revenue’s
Sales Tax Administration Section for more information.
Those with less than $500,000 in average monthly sales will still remit based on actual sales tax receipts for the prior month by 4 p.m. CST on the 20th of each month. According to the legislation’s fiscal note, it will “reduce sales tax receipts held in escrow by an estimated $15.2 million in the month of October; however this reduction will be offset by the eventual collection of actual sales tax receipts.”
Governor Kay Ivey signs HB77 (Governor’s Office /Hal Yeager)
Garrett said the law will “reduce the number of people who must go through the administrative exercise” of estimating their monthly sales collections in advance. Businesses still have to “pay what they owe,” but it will save affected businesses some accounting and legal expenses, he said.
The change was part of the governor’s and the Small Business Commission’s legislative agendas. The law “allows owners to focus solely on turning a profit every month and staying in business,” Gov. Kay Ivey said June 9 after signing HB77 into law.
Alabama retailers began prepaying sales taxes in 1983. In 2022, the Legislature raised the threshold for prepayment from $2,500 to $5,000 in average monthly sales tax liability, under the Small Business Relief and Revitalization Act. Annual sales went from $750,000 to $1.5 million with the 2022 change, affecting about 2,500 businesses.
In a tw0-year time period, more than 5,500 Alabama businesses will have been relieved of having to prepay sales taxes.
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Originally published at 11:30 a.m. June 9, 2023