Sales tax isn’t the easiest part of running a business. But if you’re operating in Montgomery, Alabama, getting it right can mean the difference between smooth sailing and surprise penalties. With layered tax rates, industry-specific rules, and evolving filing requirements, staying compliant here takes more than just guessing.
Whether you’re selling sneakers, software, or sweet tea, this guide will help you decode Montgomery sales tax system, without the legal jargon. From determining if you even owe tax to knowing exactly when and how to file, we’ve got the answers you need.
What is Montgomery State Sales Tax?
As of 2025, the total combined Montgomery sales tax rate is 10%, comprising:
| Jurisdiction | Rate |
| Alabama State | 4.00% |
| Montgomery County | 2.50% |
| City of Montgomery | 3.50% |
| Total | 10.00% |
Note: This rate applies to most taxable goods and services sold within the city.
Specific Sales Tax Rules for Montgomery
Businesses operating in Montgomery should be aware of the following:
- Filing Frequency: Sales tax returns are generally due monthly, with payments and filings required by the 20th of the following month.
- Filing Options: Businesses with an annual tax liability under $2,400 may request quarterly filing status.
- Remote Sellers: Out-of-state sellers with over $250,000 in annual retail sales into Alabama must collect and remit sales tax under the Simplified Sellers Use Tax (SSUT) Program.
- Destination-Based Sourcing: Alabama uses a destination-based sales tax system, meaning the applicable tax rate is determined by the buyer’s location.
Know more sales tax rates in Alabama with the Alabama Sales Tax Rate 2025: Rules, Penalties & Filing Guide
Is What You’re Selling Taxable in Montgomery?
Taxability of items in Montgomery aligns with Alabama state guidelines:
| Category | Tax Status |
| Tangible personal property (e.g., electronics, clothing) | Taxable |
| Prepared food and restaurant meals | Taxable |
| Groceries (unprepared food) | Partially Taxable: As of September 1, 2023, the state portion of the Montgomery sales tax on groceries was reduced from 4% to 3%. A further reduction to 2% is planned for September 2024, contingent on certain revenue conditions. Local taxes may still apply. |
| Prescription medications | Exempt |
| Medical equipment (e.g., wheelchairs) | Exempt |
| Clothing | Taxable |
| Digital goods (e.g., e-books, software downloads) | Taxable |
Note: Exemptions and taxability can vary; it’s advisable to consult the Alabama Department of Revenue or a tax professional for specific items.
Determining Nexus in Montgomery
To determine if your business is under Montgomery economic nexus and sales tax, you need to evaluate whether you have nexus, a sufficient connection to the city. You can establish sales tax nexus in Montgomery through:
- Physical presence: Owning or operating a retail location, office, warehouse, or having employees in Montgomery.
- Economic nexus: As of January 1, 2019, Alabama requires out-of-state sellers with over $250,000 in annual sales into the state and engaging in certain activities (e.g., solicitation, delivery) to collect Simplified Sellers Use Tax (SSUT). While SSUT covers state and local taxes, physical presence in Montgomery would require full local sales tax collection.
- Inventory or storage: Storing goods in a facility within Montgomery, even through third-party logistics providers.
- Temporary presence: Participating in trade shows, markets, or pop-up events within the city.
Once a nexus is established, businesses must register with the Alabama Department of Revenue or use the ONE SPOT system for filing and remittance.
Other Tax Rates for Montgomery
In addition to the general Montgomery sales tax, businesses may be subject to specific or industry-based tax rates, including:
- Lodging Tax: A 14% tax applies to hotel and short-term accommodations (state + city + county portions).
- Rental Tax: A tax on leasing tangible personal property, rates vary by item type and location.
- Alcohol Tax: Special excise taxes apply to beer, wine, and spirits at both the wholesale and retail levels.
- Amusement & Entertainment Tax: The city may impose taxes on tickets and admissions for events, movie theatres, and other entertainment venues.
- Gasoline & Tobacco Taxes: These are regulated separately and carry their own rates for sale and distribution.
Businesses involved in any of these industries must review specific city ordinances or consult with local tax authorities for exact obligations.
What Items are Exempt from Taxes in Montgomery?
Sales tax exemptions in Alabama follow the guidelines set by the State of Alabama, and these apply across the city as well. Commonly exempt items include:
- Groceries: Most food items intended for home consumption are partially exempt from state sales tax, but Montgomery still imposes local sales tax on groceries.
- Prescription drugs: Fully exempt from city, county, and Montgomery state sales taxes.
- Over-the-counter medicines: Generally taxable, unless prescribed.
- Medical equipment: Certain items like wheelchairs, oxygen, and prosthetic devices may be exempt if prescribed.
- Sales to exempt organisations: Qualifying nonprofits, religious institutions, and government agencies may receive exemption status.
Always verify the exemption status through the Alabama Department of Revenue or consult a local tax advisor, as local and state rules may differ for certain categories.
Filing Sales Tax Returns in Montgomery
If you operate a business in Montgomery, here’s what you need to know about filing sales tax:
- How to File: Use Alabama’s ONE SPOT (One Place to File and Remit) system. It allows you to file state, county, and city sales taxes from a single platform.
- Filing Frequency:
- Monthly: Most businesses file monthly if their average monthly tax liability is $200 or more.
- Quarterly: If your average liability is between $50 and $199.
- Annually: If your liability is less than $50.
- Deadlines: Returns are due by the 20th of the month following the reporting period. For example, January taxes are due by February 20.
- Penalties:
- Late Filing: Minimum penalty of 10% of the tax due or $50, whichever is greater.
- Interest: Charged on any unpaid tax from the original due date until payment is received.
Timely filing and payment help avoid unnecessary penalties. It’s a good idea to set up automated reminders or work with an accountant familiar with Alabama tax law.
Handling sales tax in Dothan can be complex, but Commenda is here to help. We remove the stress from tax compliance by:
- Automatically calculating sales tax for Hoover, Alabama, and other regions.
- Keeping an eye on nexus thresholds so you always know when and where to charge tax.
- Simplifying the filing process by syncing with the My Alabama Taxes system and creating ready-to-submit reports.
- Ensuring you stay compliant with constantly changing local tax laws, including specific city rates and exemptions.
Commenda helps you stay ahead of sales tax. Want to see how easy it can be? Book a demo today!
FAQs for Montgomery Sales Tax
Q. How do I register for a sales tax permit in Montgomery?
To collect and remit sales tax in Montgomery, you can use Commenda sales tax software. During registration, you can also indicate your business location in Montgomery so that the proper city and county taxes are applied.
Q. When are sales taxes due in Montgomery?
Sales tax returns in Montgomery are generally due monthly. The standard due date is the 20th of the month following the reporting period. For example, January’s taxes are due by February 20th. However, businesses with lower tax liabilities may be eligible to file quarterly or annually. Always confirm your assigned filing frequency on the MAT portal.
Q. How do I file a sales tax return in Montgomery?
You can file your Montgomery sales tax return through the Commenda sales tax platform, which allows you to report and pay state, county, and city taxes all in one place.
Q. What happens if I collect sales tax but don’t remit it in Montgomery?
Failing to remit collected sales tax is considered tax fraud in Alabama. Penalties may include:
- Fines
- Interest on unpaid tax
- Revocation of your business license
- Potential criminal charges for severe cases
The city and state take this seriously, make sure all collected tax is properly reported and paid on time.
Q. Are services taxable in Montgomery?
Most services are not subject to sales tax Montgomery unless they are specifically tied to the sale or installation of tangible personal property. For example:
- Repair services that include parts are taxable.
- Professional services (e.g., legal, accounting, consulting) are generally not taxable.
- Amusement and entertainment services (e.g., event admissions, recreational activities) can be taxable.
Montgomery follows state tax rules, so be sure to classify your service type accurately to determine taxability.
