Summary
A practical review of three Alabama sales and use tax rules affecting small businesses this fall. One is new as of September 1, 2026 (credit card transaction fees excluded from the tax calculation). Two are already in force and commonly overlooked: the $20,000 average monthly liability threshold for estimated sales-tax payments, in effect since October 2023, and optional five-cent rounding on in-person cash transactions, in effect since April 17, 2026. The post walks through what each means operationally, who is most affected, and closes with five FAQs and a Risk-Free Strategy Session CTA.
By: Jordan Gerheim, CEO – Outside Chief Legal LLC
One Alabama business tax change is new this fall. Two others have been in effect for some time and may have been overlooked.
Each can affect a business in practical ways. The issue may appear as a customer question about a fee on a receipt, an outdated point-of-sale setting, or a sales-tax process that was never adjusted after the law changed.
Starting September 1, 2026, credit card transaction fees are excluded from Alabama sales and use tax calculations. Separately, businesses with average monthly state sales-tax liability below $20,000 have not been required to make monthly estimated sales-tax payments since October 2023. Alabama also has allowed businesses to round in-person cash transactions to the nearest five cents since April 2026.
Even though only one of these changes is new, all three are worth reviewing.
Credit Card Transaction Fees
The newest change takes effect September 1, 2026.
Under the new rule, a credit card transaction fee that a business charges to offset interchange or processing costs is excluded from Alabama sales and use tax. The exclusion applies to both state and local sales and use tax calculations.
In practical terms, a business that charges a customer a card-processing fee will no longer collect sales tax on that fee. For example, if a receipt shows a $100 taxable purchase and a $3 credit card transaction fee, sales tax applies to the $100 purchase but not to the $3 fee.
Businesses that charge card transaction fees should review their point-of-sale and bookkeeping processes before the next billing cycle. The review should confirm that point-of-sale, invoice, and recordkeeping practices accurately identify the transaction fee and distinguish it from the underlying sale, and that the fee is handled correctly for both state and local sales-tax purposes.
Restaurants, retailers, and other businesses with substantial card-payment volume may see the most immediate impact because those fees can represent a meaningful portion of their transaction activity.
Estimated Sales-Tax Payments
This rule is not new, but it is easy to miss.
Effective October 1, 2023, Alabama increased the threshold for required estimated payments on monthly state sales-tax returns. Businesses whose average monthly state sales-tax liability during the preceding calendar year is less than $20,000 are not required to make monthly estimated sales-tax payments. The threshold increased from $5,000.
This does not necessarily change a business’s underlying sales-tax filing obligations. Instead, it changes whether the business must make estimated payments during the month.
If your business has continued making estimated payments under an old process, it is worth confirming with your bookkeeper or accountant whether the $20,000 threshold applies. A business may be following a process that made sense before October 2023 but is no longer required.
This can be particularly relevant for seasonal businesses. A retailer that generates most of its sales volume in the fourth quarter, for example, may have continued using the same estimated-payment process throughout the year even though its average monthly state sales-tax liability falls below the current threshold.
Cash Transaction Rounding
Alabama also recently authorized businesses to round in-person cash transactions to the nearest five cents.
Effective April 17, 2026, Alabama law permits a business to round the final total of an in-person cash transaction using the following method:
A final digit of 1 or 2 rounds down to 0. A final digit of 3 or 4 rounds up to 5. A final digit of 6 or 7 rounds down to 5. A final digit of 8 or 9 rounds up to 0. Amounts ending in 0 or 5 are not rounded.
The rule applies only to in-person cash transactions. It does not apply to payments made by credit card, debit card, check, gift card, money order, electronic funds transfer, or another non-cash method. The law permits rounding, but it does not require a business to use it.
Businesses that want to use this option should check whether their point-of-sale system includes a cash-rounding setting. If not, the business should ask its point-of-sale vendor whether that setting is available or planned.
This change may be especially relevant for businesses that process a significant number of cash transactions, including food trucks, market vendors, convenience retailers, and businesses that regularly participate in cash-based events.
What This Means Operationally
None of these changes should require a major system overhaul. Each does, however, call for a short and deliberate review.
A business should confirm how its point-of-sale system treats credit card transaction fees ahead of September 1. It should also confirm whether its average monthly state sales-tax liability falls below the $20,000 threshold, which would mean estimated payments are not required, and whether its current procedures reflect the 2023 change. Businesses that accept cash should decide whether they want to use the five-cent rounding option and, if so, update their cash-handling procedures accordingly.
The businesses most likely to avoid unnecessary compliance issues are those that review these changes before they create a problem. Two of the three rules have been in place long enough that they may not create a sense of urgency. That does not mean they have been implemented correctly.
Frequently Asked Questions
Do I need to take action to qualify for the estimated-payment threshold?
Generally, no separate action is required to qualify. If your average monthly state sales-tax liability is below $20,000, you generally are not required to make estimated payments on your monthly state sales-tax return. If your business is close to the threshold, ask your bookkeeper or accountant to confirm the calculation and the appropriate filing process.
Does the credit card transaction fee rule require me to pass processing costs on to customers?
No. The law does not require a business to charge customers a card transaction fee. It simply provides that a qualifying credit card transaction fee is not subject to Alabama sales or use tax beginning September 1, 2026. Whether to charge such a fee remains a business decision.
Can I round only certain cash transactions?
The law authorizes rounding for in-person cash transactions. It is optional, so a business may choose to continue using exact-penny totals. If a business decides to implement rounding, it should apply the policy consistently and ensure its point-of-sale system is configured correctly.
Why review rules that are not new?
Because a rule can be in effect without being fully implemented in a business’s actual operations. A sales-tax process, point-of-sale setting, or cash-handling procedure may continue unchanged unless someone reviews it deliberately.
What should I do if I am unsure whether a change applies to my business?
Start with your bookkeeper or accountant for questions involving sales-tax liability, estimated-payment requirements, point-of-sale treatment, or fee calculations. If the issue affects your contracts, lease provisions, customer terms, pricing practices, entity structure, or broader business operations, it may be time for a legal review.
Outside Chief Legal helps business owners and leadership teams identify practical legal and operational issues before they become larger problems. To discuss how these or other changes may affect your business, schedule a Risk-Free Strategy Session with our team.
General information only. This article is not legal or tax advice.
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