Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-6-5 - USE TAX LAW; CONTRACTORS GROSS RECEIPTS TAX; LODGINGS TAX; RENTAL TAX; UTILITY TAXES; MISCELLANEOUS RULES
Section 810-6-5-.04 - Credit For Taxes In Other States

(1) Code of Ala. 1975, Section 40-27-1, Article V. 1, provides that "each purchaser liable for a use tax on tangible personal property shall be entitled to full credit for the combined amount or amounts of legally imposed sales or use taxes paid by him with respect to the same property to another state and any subdivision thereof. The credit shall be applied first against the amount of any use tax due the state, and any unused portion of the credit shall then be applied against the amount of any use tax due a subdivision."

(2) Notwithstanding Code of Ala. 1975, Sections 40-23-65 and 40-23-106, credit for legally imposed sales and use taxes paid to any other state or its subdivisions will be allowed against Alabama use tax due even if that state does not allow credit for sales and use taxes paid to Alabama or its subdivisions.

(3) The total credit allowed cannot exceed the taxes due the state of Alabama or its subdivisions. Any amount of tax paid to another state or its subdivisions which exceeds the amount of tax due Alabama with respect to the same property may then be credited against any local taxes due with respect to the same property. If the legally imposed taxes paid to another state or its subdivisions exceed the taxes due Alabama and its subdivisions, no further credit shall be allowed. The excess of taxes paid on a purchase cannot be credited against taxes due Alabama and its subdivisions on another purchase. No credit will be allowed for taxes paid in error which were not legally due another state or its subdivisions.

(4) The following example is provided to illustrate how credit shall be allowed for legally imposed taxes paid to other states and their subdivisions:

Purchase Price of Item A: $4,000 (no tax paid to another state or its subdivisions)

Purchase Price of Item B: $6,000 (7% total tax paid to another state and its subdivisions)

Total Purchases: $10,000

Assume that the local use taxes levied by Alabama subdivisions and applicable to Items A and B total 2 percent. (Local tax rates in Alabama vary.)

State of Alabama Use Tax Due on Items A and B: $400 (4% x $10,000)

Use Tax Due Subdivisions of Alabama on Items A and B: $200 (2% x $10,000)

Maximum Available Credit: $420 (7% x $6,000)

Alabama State Use Tax Eligible for Offset: $240 (4% x 6,000)

Local Use Taxes of Alabama Subdivisions Eligible for Offset: $120 (2% x $6,000)

Actual Allowable Credit (Total State and Local Taxes Eligible for Offset: $360

State Use Tax Due Alabama after allowance of allowable credit:

$160 ([4% x $10,000] less $240 = $160)

Local Use Tax Due Alabama Subdivisions after allowance of allowable credit: $80 ([2% x $10,000] less $120 = $80)