Alabama lesson 5 of 6
Alabama LLC taxes, licenses and the Business Privilege Tax
Alabama taxes LLC members on their share of pass-through income, and also levies a separate Business Privilege Tax on the LLC itself, though most small LLCs now owe nothing under a recent exemption.
How members are taxed
A standard Alabama LLC passes income through to its members, who report their share on their Alabama individual income tax return under the state's rate structure. Check the Department of Revenue's current-year individual tax pages for the applicable rates and brackets before filing.
The Business Privilege Tax
Separately, Alabama levies a Business Privilege Tax on every LLC organized in or doing business in the state, based on the entity's net worth apportioned to Alabama, reported on Form PPT. For tax years beginning after December 31, 2023, a taxpayer whose computed tax is $100 or less owes nothing and is not required to file the return at all, which covers most small LLCs, especially in their early years.
Confirm your own LLC's computed tax on the Department of Revenue's Business Privilege Tax pages before assuming you fall under the exemption, since it depends on your net worth calculation, not simply on being an LLC.
Sales tax and local licensing
If your LLC sells taxable goods or certain services, register for a sales tax account through My Alabama Taxes before making sales. Many Alabama cities and counties also require a local business license, priced and structured independently of the state, so check with the city or county where you operate.
Alabama does not issue one statewide general business license. Licensing depends on your industry regulator and on the city or county where you do business.
Key takeaways
- LLC pass-through profit is taxed under Alabama's individual income tax rate structure.
- The Business Privilege Tax is separate from income tax, but most small LLCs owe $0 and do not have to file when the computed tax is $100 or less.
- Local business licenses vary by city and county and are separate from state registration.
Frequently asked questions
Does every Alabama LLC pay the Business Privilege Tax?
Every LLC is subject to it, but a full exemption applies when the computed tax is $100 or less, for tax years beginning after December 31, 2023, so most small LLCs owe nothing and are not required to file.
Is there a statewide business license in Alabama?
No. Check with your city or county and with any state board that regulates your specific industry.
Official sources
Or let us file your Alabama LLC for you
Everything above is yours to use for free. If you would rather hand it over, we prepare and file the Certificate of Formation, act as your registered agent, and track your ongoing deadlines.
Last reviewed: September 2026 - reviewed by Gullia Filing Legal & Formation Team