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

Local Rental Tax

Local rental tax is levied in the same manner as the state rental tax, and these rates vary.

Filing Frequencies and Due Date

Rental tax returns and remittances are due on or before the 20th day of the month for the previous month’s rentals. However, you may request quarterly filing status if you have a tax liability of less than $2,400 for the preceding calendar year¹.

You may request biannual filing if you have a tax liability of less than $1,200 for the preceding calendar year. You may also request biannual filing if you make rentals during no more than two 30-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. You may also request annual filing if you make rentals during no more than one 30-consecutive-day period during the preceding calendar year.

Changes to the filing status can only be requested each year before February 20 to file quarterly, biannually or annually for that calendar year.   

No discounts apply for timely filing. Note: If paying electronically, the EFT payment information must be transmitted by 4 p.m. (central time) on or before the due date to be considered timely paid. 

Rental Facilitators

Persons or entities that facilitate third-party rental transactions of Class II or Class IV property² are designated as rental facilitators. Rental facilitators are required to collect and remit rental tax for leases made to Alabama customers or comply with the notice and reporting requirements.

Rental facilitators must apply for a special rental tax account with ALDOR to comply with remittance or reporting requirements. If the rental facilitator chooses to comply with the notice and reporting requirements in lieu of collecting and remitting rental tax, then an annual informational reporting requirement with ALDOR along with an annual transaction summary notice provided to each third-party owner/lessor who engaged in transactions facilitated by the facilitator for the lease or rental of Class II or Class IV property are required.

The annual informational report must be filed electronically by January 31 of the calendar year succeeding the year for which the report is provided. The annual informational report must be submitted through ALDOR’s online filing portal  at https://myalabamataxes.alabama.gov; the report data may be entered manually or uploaded, click here for the report layout instructions.

It is recommended that a statement be included on the lease contract, or in another form that is readily available to each third-party owner/lessor, indicating whether or not the  facilitator is collecting Alabama rental tax for the transactions in which they facilitate.

1. Section 40-23-7, Code of Alabama 1975
2. Section 40-8-1, Code of Alabama 1975