Alabama to Phase Out Minimum Business Privilege Tax Beginning in 2023

By Ashley G. White, JD, CPA

Governor Kay Ivey recently signed into law Act No. 2022-252, amending the law regarding the minimum business privilege tax to be paid by small businesses. The business privilege tax is levied for the privilege of being organized under the laws of Alabama or doing business in Alabama and is calculated on a taxpayer’s net worth apportioned to Alabama. The rates range from .025% to .175%, but a minimum of $100 is required for every year that an entity legally exists. This remains true even if the business is not actively conducting business or has no net worth.

Touted as a huge tax cut for the support of small businesses, this new law has an estimated cost of $23 million by 2024. For the 2023 tax year, the $100 minimum is cut in half to $50 for the approximately 230,000 entities subject only to the minimum, and in 2024, it is eliminated completely for those taxpayers. The Alabama legislature indicated that it was able to make this adjustment because both the general fund budget and the trust fund budget are healthy, though that is due in large part to the relief funds provided by the federal government over the past two years.

While the $100 savings may not have a significant impact on keeping small businesses afloat, it does eliminate an annual nuisance and simplifies tax filing. This is particularly true for those businesses that file extensions and/or do not have any other tax payments due at the entity level.  Reach out to your trusted BMSS advisor with any questions on how this change affects you and your small business. Call (833) CPA-BMSS or visit our website for contact information.