What Is Business Privilege Tax in Alabama?
Navigate Alabama's annual business privilege tax requirements. Understand your obligations and the essential process for operating legally in the state.
The Alabama Business Privilege Tax (BPT) is an annual tax imposed on entities for the privilege of conducting business in Alabama or for being organized under Alabama law. It is not an income tax, but rather a tax on the ability to operate and maintain legal standing within the state.
Understanding Alabama’s Business Privilege Tax
The Alabama Department of Revenue (ADOR) administers the Business Privilege Tax. This annual obligation applies to most business entities, including those organized under Alabama law or qualified to do business within the state.
Entities typically subject to this tax include corporations (both C-corporations and S-corporations), limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and business trusts. Disregarded entities, such as single-member LLCs, also have a filing requirement. The tax remains due each registered year until the entity is legally dissolved or withdrawn through the Alabama Secretary of State, even if no business activity occurs.
Determining Your Tax Obligation
The Alabama Business Privilege Tax liability for most entities, including corporations and LLCs, is based on their “net worth” as defined by Alabama law. Net worth generally comprises a business’s capital, surplus, and undivided profits. This net worth is apportioned to Alabama based on factors like sales, payroll, and property located within the state.
The tax rate is graduated and determined by the entity’s federal taxable income apportioned to Alabama, ranging from $0.25 to $1.75 for each $1,000 of net worth in Alabama. For instance, if an entity’s federal taxable income is less than $1, the rate is $0.25 per $1,000 of net worth. If federal taxable income is at least $1 but less than $200,000, the rate is $1.00 per $1,000.
The minimum privilege tax for most entities was reduced from $100 to $50 for taxable years beginning after December 31, 2022. For taxable years beginning after December 31, 2023, a full exemption applies if the calculated tax due is $100 or less. The maximum privilege tax for most business entities is $15,000, while financial institutions and insurance companies have a maximum of $3,000,000.
Financial institutions and insurance companies are subject to the Business Privilege Tax filing requirement. Entities with specific deductions, like investments in pollution control equipment or air carrier hub operation equipment, can reduce their Alabama net worth.
Filing and Payment Requirements
Before filing, a business needs to gather specific information to accurately complete the required forms. This includes the calculated net worth, Federal Employer Identification Number (FEIN), Alabama Department of Revenue (ADOR) account number, the business’s current address, and its entity type.
The primary forms for filing are Form BPT-IN for initial information, and Forms CPT or PPT for annual returns, with Form BPT-V serving as the payment voucher. C-corporations, financial institution groups, insurance companies, REITs, and business trusts typically file Form CPT, while S-corporations, limited liability entities, and disregarded entities file Form PPT.
The initial Business Privilege Tax Return (Form BPT-IN) must be filed within two and a half months after the entity incorporates, organizes, qualifies, or begins doing business in Alabama. Annual Business Privilege Tax returns (Forms CPT and PPT) are generally due on the same date as the corresponding federal income tax returns. For calendar year filers, this typically means April 15th, or the 15th day of the fourth month following the close of the fiscal year.
An automatic extension to file the annual return is granted if a federal business tax extension is successfully filed, but this extension applies only to filing, not to payment. The full amount of tax due must be paid by the original due date of the return, regardless of any filing extension. Payments can be made electronically through My Alabama Taxes (MAT), which is mandatory for payments of $750 or more. Payments less than $750 can also be remitted by check or money order, accompanied by Form BPT-V, made payable to the Alabama Department of Revenue.
What Happens If You Don’t Comply
Failing to meet Alabama Business Privilege Tax obligations can result in specific penalties and the accrual of interest. For late filing, a penalty of 10% of the tax due or $50, whichever is greater, is applied. This penalty can accumulate monthly, though it typically has a maximum limit, often not exceeding 25% of the tax.
Interest also accrues on underpayments and late payments, generally calculated on a daily basis. This interest is applied at a rate of 1% per month or fraction of a month on the outstanding tax until it is paid in full. These provisions are outlined in the Code of Alabama Section 40-29.
Beyond monetary penalties, the Alabama Department of Revenue may pursue broader enforcement actions. These actions can include placing liens on a business’s property to secure the unpaid tax debt. The state may also issue levies, which can seize assets or income to satisfy the outstanding tax liability. Ultimately, non-compliance can lead to the revocation of a business’s registration to operate in Alabama, impacting its legal capacity to function within the state.