By area, Alabama is the 30th-largest state, covering a good 135,000 km², much of it forest. The region around Montgomery and Selma has especially fertile alluvial soil. To the south lies the Gulf of Mexico, where the state's largest river, the Alabama River, flows out to sea. The Gulf also shaped the sandy coastal plain that stretches from the south into western Alabama. Alabama borders Florida to the southeast, Georgia to the east, Tennessee to the north and Mississippi to the west.
Located in the Southeast, the fastest-growing region of the USA, Alabama has plenty to offer not just its more than 5.1 million residents (as of 2024) but businesses too. Low costs, business-friendly policies, successful vocational training programs, a skilled workforce and solid infrastructure read like an open invitation to entrepreneurs.
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A top 5 spot among the “Best States for Doing Business”
In each of the past six years, Alabama finished in the top five of Area Development magazine's “Best State for Doing Business” ranking. On top of the reasons above, low taxes are another plus. The state has built a business climate where companies can thrive and innovate. Alabama has a deep pool of skilled workers above all across manufacturing, whether aircraft, rockets and missiles or handcrafted furniture.
But Alabama is about far more than manufacturing. The state is home to the world's fourth-largest research park, seven high-performing research universities such as the University of Alabama at Birmingham, and proven business incubators.
Outstanding economic momentum
Alabama ranks among the top states for economic momentum, according to State Policy Reports, which analyzed key economic performance in the first quarter of 2021. A score of 1.31 put Alabama eighth nationwide (average 0). The index combines personal income growth, job growth and population growth into a measure of economic vitality.
Alabama Governor Kay Ivey welcomed the result. In her view, the groundwork was laid in recent years by encouraging business growth. State Representative Bill Poole wants to keep strengthening competitiveness through close cooperation, with a focus on research, innovation, technology and entrepreneurship.
A favorite destination for foreign direct investment
In recent years, major international companies such as Mercedes-Benz, Airbus and Toyota have invested in building operations in Alabama. In 2016, foreign direct investment totaled 1.5 billion dollars, much of it in manufacturing. The investors are mainly German, Japanese and South Korean companies.
Entire industries, the auto industry for one, were built in Alabama largely on foreign investment. In total, 38,000 Alabamians work in the auto industry, the vast majority for foreign-owned companies.
See the 10 most popular US states for foreign direct investment.
The export engine picks up speed
Exports are booming too, growing 57% between 2009 and 2014 to a total of 19.5 billion dollars. Every year, goods from Alabama ship to around 200 countries. The top destination is Canada, with Germany also among the leaders. The biggest export category is motor vehicles and parts.
Income tax in Alabama
Alabama levies income tax of 2-5%, depending on income. On top of that, federal income tax applies.
Corporate tax in Alabama
Alabama levies corporate tax of 6.5%. On top of that, federal corporate tax applies.
Sales tax in Alabama
The USA has no VAT on the European model. Instead, states, counties and municipalities levy a local sales tax on the sale of goods (but not services).
Sales tax rate in Alabama
Alabama's state sales tax is 4%. Cities and counties add an average of 5.22%, so the combined rate averages 9.22%.
Alabama nexus laws & sales tax
Learn more about economic nexus laws and sales tax.
Effective date
October 1, 2018
Included transactions
Gross retail sales of tangible personal property delivered into the state. Sales made through a registered marketplace facilitator are excluded, but sales made through a non-collecting marketplace are included.
Treatment of exempt sales
Exempt sales (other than wholesale sales) count toward the threshold. Exempt services do not.
Trigger
Sales only
Sales/transaction threshold
$250,000
Measurement period
The threshold applies to sales in the previous calendar year
Additional information
- Registration requirements: Alabama has not specified how quickly a remote business must register once it exceeds the economic nexus threshold.
- Remote sellers with economic nexus that choose to join the state's SSUT (Simplified Sellers Use Tax) program must collect and remit tax on sales into Alabama from October 1, 2019. For more, see the Simplified Sellers Use Tax FAQ.
- Alabama sales and use tax guidance
Alabama marketplace sellers & sales tax
Learn more about registration requirements for marketplace sellers
Effective date for marketplace facilitators:
January 1, 2019
Economic nexus threshold:
More than $250,000 in Alabama sales in the previous calendar year. When calculating the threshold:
- Remote sellers should include direct sales and sales through a non-collecting marketplace
- Marketplace facilitators should include all sales made through the marketplace, including sales by affiliates and marketplace sellers
- Marketplace sellers should exclude sales made through a collecting marketplace
Registration requirements:
- Remote multichannel sellers: Once you exceed the economic nexus threshold, you must register and collect Alabama sales tax on sales not taxed by a marketplace facilitator.
- Remote marketplace sellers: You do not need to register with the state, even if you have exceeded the economic nexus threshold. Contact the Alabama Department of Revenue (DOR) for more information.
- In-state multichannel sellers: You must register with the Alabama DOR and collect tax on sales not taxed by a marketplace facilitator.
- In-state marketplace sellers: You do not need to register for a sales/use tax account, but should instead apply to the State of Alabama for an exemption certificate. (In-state sellers need the exemption certificate to buy items for resale tax-free.) Contact the Alabama DOR for more information.
- Learn more here and here.
Find more state profiles in our overview of all US states. Which state is right for your company? Our guide Which US state is best for your company? explains. And how to run a US LLC with no US presence completely tax-free is shown by our sister site zerotax.llc.
Our services for Alabama:
We can form your company in six states; our overview of US company formation shows which one fits your plans in Alabama. Any open questions, we'll answer in a consultation.