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Rental or Leasing Tax

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Rental or Leasing Tax

Rental tax is a privilege tax levied on the lessor for the leasing or renting of tangible personal property.

Rental tax is a privilege tax levied on the lessor for the leasing or renting of tangible personal property. The gross receipts, including any rental tax invoiced, from the leasing or rental of tangible personal property are subject to the State rental tax.

This tax is due on “true leases” (those leases in which the title to the property is retained by the lessor at the end of the lease agreement or when the lessee has an option to purchase the item at the end of the lease agreement for the fair market value of the item).

“Conditional sales leases” (those in which the title of the property is transferred to the lessee at the end of the lease agreement or when the lessee has an option to purchase the item at the end of the lease agreement for $1 or a nominal amount with no option to return the leased item without purchasing) are subject to sales tax. When equipment is under the control of and operated by employee of lessor, then the transaction is considered a service rendered and is not subject to rental tax.

State rental tax rates

See State Tax Rates 

  • Automotive vehicles:  1.5%
  • Linens/Garments:  2.0%
  • Other:  4.0%

When is the rental tax due?

Rental tax returns and remittances are due monthly on or before the 20th day of the month for the previous month’s rentals. However, pursuant to Section 40-23-7, Code of Alabama 1975, you may request quarterly filing status if you have a tax liability of less than $2,400.00 for the preceding calendar year.  You may request bi-annual filing if you have a tax liability of less than $1,200 for the preceding calendar year.  You may also request bi-annual filing if you make rentals during no more than two thirty consecutive day periods during the preceding calendar year.  You may request annual filing status if the tax liability for the entire preceding calendar year is less than $600.00.  You may also request annual filing if you make rentals during no more than one thirty consecutive day period during the preceding calendar year.  Changes to the filing status can only be requested each year before February 20th in order to file quarterly, bi-annually or annually for that calendar year.   Note: If paying via EFT, the EFT payment information must be transmitted by 4:00 p.m. (Central Standard Time) on or before the due date, to be considered timely paid. Learn more 

If the 20th falls on a weekend or holiday, when is the due date?

The return must be submitted on or before the next working day to be timely filed.

Is the seller allowed a discount for timely filing and paying the sales tax due?

No discounts apply for timely filing.

Is there a penalty imposed for not timely filing and paying the sales tax due?

Yes. Penalty and interest is due if the tax is paid after the 20th day of the month in which the tax is due. The Failure to Timely File Penalty is 10% of the tax required to be paid or $50.00, whichever is greater. The Failure to Timely Pay Penalty is 10% of the tax required to be paid. Interest is due at the current rate. Note: If paying via EFT, the EFT payment information must be transmitted by 4:00 p.m. (Central Standard Time) on or before the due date, to be considered timely paid. View interest rates  Learn more 

Do I need to file a rental tax return for a month in which I had no rentals?

Yes. Once an account has been established for your business, no matter what type of tax account you have, a tax return must be filed for each month even though no tax is due.

Local Rental Tax

Local rental tax is levied in the same manner as the State rental tax; these rates vary. Local rental tax is due monthly with returns and remittances to be filed on or before the 20th day of the month for the previous month’s rentals. However, pursuant to Section 40-23-7, Code of Alabama 1975, you may request quarterly filing status if you have a tax liability of less than $2,400.00 for the preceding calendar year.  You may request bi-annual filing if you have a tax liability of less than $1,200 for the preceding calendar year.  You may also request bi-annual filing if you make rentals during no more than two thirty consecutive day periods during the preceding calendar year.  You may request annual filing status if the tax liability for the entire preceding calendar year is less than $600.00.  You may also request annual filing if you make rentals during no more than one thirty consecutive day period during the preceding calendar year.  Changes to the filing status can only be requested each year before February 20th in order to file quarterly, bi-annually or annually for that calendar year.   No discounts apply for timely filing. Note: If paying via EFT, the EFT payment information must be transmitted by 4:00 p.m. (Central Standard Time) on or before the due date, to be considered timely paid. Search Local Tax Rates