Alabama localities complicate July sales tax holiday for businesses

Alabama’s annual back-to-school sales tax holiday takes place this weekend, July 16–18, 2021. During the event, Alabama’s state sales tax does not apply to qualifying books, clothing, computers, and school supplies. However, local sales tax may apply — and that can complicate compliance for affected businesses.

Counties and municipalities are not required to participate in the sales tax holiday, but they may opt to do so. Under Alabama law, local jurisdictions wishing to participate must adopt a resolution or ordinance to that effect “at least 30 days prior to the third full weekend of July,” when the tax-free period takes place.

Over 200 localities have opted to participate each year, according to the Alabama Department of Revenue. This is good for businesses, not because they don’t have to charge the local tax, but because they know they aren’t supposed to. They can prepare.

Unfortunately, it’s not unusual for cities or counties to alert the Department of Revenue that they’ll be participating within that 30-day window. This year:

Brewton gave notice July 12 that it would participate in 2021
Centreville and Fayette County gave notice June 17 that they would participate in 2021
Guin gave notice June 18 that it would participate each year
Loxley gave notice July 7 that it would participate in 2021
Orrville gave notice June 21 that it would participate in 2021

Furthermore, on July 8, Lake View and Tallapoosa County let the department know they’re opting out of the 2021 holiday.

Every year, the Alabama Department of Revenue provides a list of participating localities to help taxpayers determine their sales tax obligations. About 63 local jurisdictions have opted to not participate, though it’s not clear whether this is for 2021 alone or every year. A number of localities hadn’t given the department any notice as of July 12, 2021, the last time the page was updated.

Five local jurisdictions are participating to a “limited” extent in 2021 (or every year, depending on the locality). This usually means the sales tax holiday applies to a portion of the local tax but not the entire local tax.

A tight spot for businesses

It takes time for retailers to prepare for a sales tax holiday. Like a lot of states that offer them, Alabama has set price restrictions on eligibility: A sweater priced $99.99 qualifies for the sales tax holiday; one priced $100.01 does not. Local tax may apply, or it may not, or only a portion of the local tax may need to be collected. It’s complicated.

Retailers need to set point-of-sale systems to not charge the tax they’re not supposed to charge on qualifying sales. They need to train staff, so they know what’s coming. And to do these tasks, they need time. Ideally, more than a few days.

Retailers don’t have the luxury of opting out of a sales tax holiday. Every business registered to do business in the state that sells eligible items is required to abide by the sales tax holiday rules, including registered out-of-state sellers. It would be nice if local governments didn’t make their job harder.

Alabama’s two sales tax holidays (the severe weather preparedness holiday in February and back-to-school holiday in July) are always challenging for businesses. Fortunately, automating sales tax calculations can help. For the upcoming tax-free period, Avalara has 172 product taxability rules per jurisdiction. The total number of rules can exceed 86,000 because each participating jurisdiction may actually have two jurisdictions — one for the city and another for its police jurisdiction. That would be a lot for any business to manage manually.

For more information about the tax-free periods to come, see 2021 sales tax holidays. To learn how automating sales tax calculations can help retailers comply with sales tax holiday requirements in all states, check out Avalara AvaTax.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.