Alabama recently enacted a law related to requirements for local sales and use tax exemptions. First, the law clarifies that any law creating a sales and use tax exemption will only apply automatically to the state level sales and use tax unless the law explicitly includes the municipal collection authority. In situations where the initial exemption does not include the local collection authority, the locality must pass an ordinance or resolution with an effective date of September 1 of a specific year, a stated duration (either in fiscal year increments or in perpetuity), and the local government must notify the Alabama Department of Revenue (ADOR) of the resolution by the July 1 before the resolution goes into effect. Municipalities wishing to end existing local exemptions must also use the September 1 effective date and give notice by July 1 preceding the termination.
Existing laws providing local exemptions will only remain in effect if they do not require local intervention; going forward, all localities must meet the new requirements to adopt or maintain local exemptions. Existing local exemptions that do not meet the new standards will automatically expire September 1, 2025, unless the local government meets the new requirements and notifies ADOR before July 1, 2025. The ADOR will be required to maintain a public listing of valid county and municipal sales and use tax exemptions and is empowered to promulgate rules needed to implement and administer the new law.
Taxpayers in Alabama will need to account for these additional requirements and will need to be aware of changes at the local level. Before the changes go into effect, Alabama businesses and consumers will want to ensure they have considered all possible changes and that they have the appropriate documentation related to exemptions and local delivery or usage information on sales. Going forward, Alabama businesses will need to be mindful or any changes in July that will impact their collection requirements in the following September. (HB191 Enacted May 27, 2025.)