If you want to start and run an Alabama limited liability company (LLC), you'll need to prepare and file various documents with the state. This article covers the most important ongoing reporting and state tax filing requirements for Alabama LLCs.
The State of Alabama requires you to file an annual report as part of your required state Business Privilege Tax return. See the next section for more information.
When it comes to income taxes, most LLCs are so-called pass-through tax entities. In other words, the responsibility for paying federal income taxes passes through the LLC itself and falls on the individual LLC members. By default, LLCs themselves do not pay federal income taxes, only their members do.
Alabama, however, imposes an annual Business Privilege Tax (BPT) on LLCs. In general, the BPT is calculated based on the total amount of income passed through to the LLC members. There is a $100 minimum tax. The tax is paid to the Department of Revenue (DOR). The Business Privilege Tax return for pass-through entities like LLCs (Form PPT) includes an Annual Report form (Form AL-CAR) that must be included with the return. Except for the initial return, BPT returns are due no later than three and a half months after the beginning of the LLC's tax year. For example, if your LLC's tax year matches the calendar year, the return would be due by April 15.
There is a separate form (Form BPT-IN) for the initial return (the first return filed after the creation of your LLC). The initial return is due two-and-a-half months after the LLC is organized.
In some cases, the owners of an LLC choose to have their business treated like a corporation for tax purposes. This choice is made by filing IRS Form 2553 with the IRS. (See the IRS website for the form.) The State of Alabama, like most other states, has a corporation income tax. In Alabama, the corporate tax currently is computed at a flat rate of 6.5% of taxable net income. If your LLC is taxed as a corporation you also will need to pay this tax. For more information about the business privilege and corporation income taxes, including how you may be able to file or pay online, check the DOR website.
Does your LLC have employees? If so, you'll need to pay employer taxes. Some of these taxes are paid to the federal government (the IRS) and are not covered here. (But note that federal employer tax obligations start with obtaining a federal employer identification number (EIN).) However, Alabama employers also must pay taxes to the state.
First, you'll need to withhold and pay employee income taxes to the Department of Revenue. Begin by registering your business with the DOR either online (via the My Alabama Taxes website) or on paper (using DOR Form COM:101, Combined Registration/Application). Once you've registered, you'll need to file withholding taxes on a periodic basis (for example quarterly using Form A-1 or monthly using Form A-6). You'll also need to use Form A-3 each year to reconcile your LLC's tax withholding. For more details, including information on electronic filing options, check the DOR website.
In addition, you'll probably need to register to pay state unemployment insurance (UI) taxes. These taxes are handled through the Alabama Department of Labor (DOL). You can register for these taxes online or by using Form SR-2 (Application to Determine Liability). Then, each quarter, go online to report on wages and pay the UI taxes. For more information, check the DOL website.
If your LLC will sell goods to customers in Alabama, you will need to collect and pay sales tax. This means you'll have to register for this purpose with DOR. Once you've registered you'll be sent a sales tax certificate. Then you'll need to make periodic sales tax payments for goods sold. For more information, including online filing requirements, check the DOR website.
If you will be doing business in states other than Alabama, you may need to register your LLC in some or all of those states. Whether you're required to register will depend on the specific states involved: each state has its own rules for what constitutes doing business and whether registration is necessary. Often activities such as having a physical presence (a business location) in a state, hiring employees in a state, or soliciting business in a state (such as by telephone, print ads, mail, or the Internet) will be considered doing business for registration purposes. Registration usually involves obtaining a certificate of authority or similar document.