Start a business in Alabama

Alabama has no general state business licence. The Department of Revenue's role in licensing is to publish the schedule; the licence itself comes from the county. And for sales tax, the Department collects for some localities and not others — the ones it does not collect for are called "non-state administered", and they are numerous.

The consequence is that two Alabama businesses with identical revenue can have completely different lists of people to pay, depending on which counties and cities they touch. Working out that list is the first job, and it is not on any single website.

Formation is $228, which is $200 for the articles plus a compulsory $28 name reservation you have to file first — Alabama will not take the articles without it. Online filings run roughly one to three business days. The LLC hub has the mechanics.

You need a county business privilege licence in every county where the business operates. Which office sells it depends on the county: the probate judge in some, the revenue commissioner or licence commissioner in others. There is a $1 issuance fee per licence on top of the licence cost, and some counties add their own issuance or mailing charges.

The licence year is fixed for everybody and has nothing to do with your formation date. Renewal is in October. A business starting after 1 April can buy a half-year licence, which is the state's concession to the fixed calendar — but it means a business that opens in May pays for half a year and renews five months later.

Municipalities licence separately on top of the county, through the city or town clerk. So a business inside city limits typically holds a county licence and a city licence, and a business working across two counties and three towns holds five.

More than a hundred Alabama cities and around fifteen counties are non-state administered for sales tax. Their tax is collected by private firms — Avenu Insights, PReMA Corp and STACS are the ones that come up most — rather than by the Department of Revenue. You may still file through My Alabama Taxes, but the payment goes to the locality's own bank account, not to the state's.

This matters in three practical ways. Correspondence about your local sales tax comes from a company you have never heard of, and it is not a scam. Deadlines, notices and audits for those localities are administered by that company under contract. And reconciling what you paid means checking against more than one collector.

The Department of Revenue publishes the list of non-state administered localities. Check it against the places you actually sell into before you set up your filing routine, not after the first notice arrives.

City and county rates stack on top with no statutory cap, adding up to about 7.5% combined, which is why Alabama's combined rate reaches 9%–10% in the larger cities in the larger cities and ranks among the highest in the country. Registration with the state is free on My Alabama Taxes. If you are pricing against out-of-state competitors, a near-10% rate on the ticket is a real factor in how the price reads.

Around two dozen Alabama municipalities levy an occupational tax of roughly 0.5% to 2% on the wages of anyone who works inside the city, whether or not they live there. The employer withholds it and remits it directly to the city — not to the Department of Revenue — so it is a separate registration, a separate return and a separate payment from state withholding.

It is charged on gross wages, with no deductions and no exemptions, which means it applies from the first dollar. There is no threshold to sit under and no allowance to claim.

The part owners miss: if you pay yourself a salary through a city that levies it, you pay it on your own salary too. A founder taking $60,000 in a 1% city is paying $600 a year in a tax that does not exist forty miles away.

This is where Alabama costs less than everywhere around it. Workers' compensation is not compulsory until you regularly employ five people, counting full-time, part-time and corporate officers. Only a handful of states go that high.

A four-person Alabama service business carries no workers' comp premium at all. The same four-person business in Maryland, West Virginia or Kentucky has been covered since its first hire, and in Virginia, Georgia or North Carolina since its third. On a small crew that is a four-figure annual difference, and it is one of the few Alabama running costs that comes in below its neighbours' rather than above.

Set against all that local complexity, Alabama's state layer is remarkably quiet. There is no annual report fee. The Business Privilege Tax has a statutory minimum of $100, but since the 2024 tax year an LLC owing $100 or less pays nothing and files no return — which covers the great majority of small LLCs. So five years of Alabama state fees is $228: the formation cost, and nothing after it.

That is the trade Alabama makes, and it is worth seeing clearly. The state charges you once and leaves you alone; the counties and cities charge you every year, in several places, through several offices. A business that stays in one county and outside city limits gets a genuinely cheap deal here. A business that works across five jurisdictions gets one of the more administratively demanding arrangements in the country, and none of that difficulty shows up in a table of state filing fees.