Leasing or Renting Tangible Personal Property.

Ala. Code tit. 40, ch. 12, art. 4

in effect

Ala. Code § 40-12-220 Definitions.

40-12-220. Definitions. For purposes of this article, the following terms shall have the respective meanings ascribed by this section: (1) BUSINESS. All activities engaged in, or caused to be engaged in, by any person with the object of gain, profit, benefit, or advantage, either direct or indirect to such person. (2) COMMISSIONER. The Commissioner of Revenue of the state. (3) DEPARTMENT. The Department of Revenue of the state. (4) GROSS PROCEEDS. The value proceeding or accruing from the leasing or rental of tangible personal property, including any license or privilege taxes passed on to a lessee by a lessor, without any deduction on account of the cost of the property so leased or rented, the cost of materials used, labor or service cost, interest paid, or any other expense whatsoever, and without any deductions on account of loss, and shall also include on the part of any person claiming exemption under subdivision (4) of Section 40-12-223 an amount equal to the amount of rental paid on any tangible personal property acquired under such exemption and thereafter diverted to the use of such person. (5) LEASING or RENTAL. A transaction whereunder the person who owns or controls the possession of tangible personal property permits another person to have the possession or use thereof for a consideration and for the duration of a definite or indefinite period of time without transfer of the title to such property. The detention by the user thereof of freight cars, oxygen and acetylene tanks, and similar property, in respect of which detention a demurrage or per diem charge is made against the user of such property, shall not be deemed to constitute a transaction whereunder property is leased or rented to another within the meaning of this article. (6) PERSON. Any natural person, firm, partnership, association, corporation, receiver, trust, estate, or other entity, or any other group or combination of any thereof acting as a unit. (7) STATE. The State of Alabama. (8) TANGIBLE PERSONAL PROPERTY. Personal property which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses. The term “tangible personal property” shall not include stocks, bonds, notes, insurance or other contracts, or securities. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, § 1; Act 2001-636, p. 1242, § 3.)

Ala. Code § 40-12-220.1 Legislative Intent.

40-12-220.1. Legislative Intent. It was the intent of the Legislature in enacting Sections 40-12-220 to 40-12-227, inclusive, to impose a license tax or privilege tax on lessors based on the gross proceeds derived from the leasing or rental of tangible personal property. It is also the intent of the Legislature to permit lessors of tangible personal property to pass on to lessees such license or privilege taxes by adding such taxes to the leasing price or otherwise, with all such amounts constituting the gross proceeds subject to the privilege or license tax provided in this article. The purpose of Act 2001-636 is to clarify and insure the implementation of the actual purpose and original intent of the Legislature when it enacted this article. (Act 2001-636, p. 1242, §2.)

Ala. Code § 40-12-221 License Required.

40-12-221. License Required. If any person shall engage in or continue in any business for which a privilege tax is imposed by Section 40-12-222 as a condition precedent to engaging or continuing in such business, he shall apply for and obtain from the department a license to engage in and to conduct such business for the current tax year upon the condition that he shall pay the taxes accruing to the state under the provisions of this article; provided, that no license shall be issued under the provisions of this article to any person who has not complied with the provisions of this article, and no provision of this article shall be construed as relieving any person from the payment of any license or privilege tax now or hereafter imposed by law. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §4.)

Ala. Code § 40-12-222 Levy and Amount of Tax.

40-12-222. Levy and Amount of Tax. (a)(1) In addition to all other taxes now imposed by law, there is hereby levied and shall be collected a privilege or license tax on each person engaging or continuing within this state in the business of leasing or renting tangible personal property at the rate of four percent of the gross proceeds derived by the lessor from the lease or rental of tangible personal property. (2)a. Except as provided in paragraph b., the privilege or license tax on each person engaging or continuing within this state in the business of leasing or renting any automotive vehicle or truck trailer, semitrailer, or house trailer shall be at the rate of one and one-half percent of the gross proceeds derived by the lessor from the lease or rental of such automotive vehicle or truck trailer, semitrailer, or house trailer. b.1. For purposes of paragraph a. only, the business of leasing or renting an automotive vehicle includes peer-to-peer car sharing as defined in Section 32-15A-2. The gross proceeds collected by a peer-to-peer car sharing program as the leasing facilitator under Chapter 15A of Title 32 shall be subject to the tax set forth in paragraph a. only for those transactions where the shared vehicle was not subject to the applicable sales and use taxes upon purchase in the jurisdiction in which the shared vehicle owner purchased the vehicle or if sales and use taxes were not paid at the time of initial titling and registration in this state. 2. The peer-to-peer car sharing program shall require a shared vehicle owner to certify if the shared vehicle owner paid the applicable sales and use taxes upon purchase or at the time of initial titling and registration in this state. The peer-to-peer car sharing program shall retain records of a shared vehicle owner’s certification under this paragraph. c. Notwithstanding paragraph b., beginning October 1, 2026, any local rental tax levied pursuant to Section 45-37-244.01 shall be collected and remitted by any peer-to-peer car sharing program. (3) The tax levied in this article shall not apply to any leasing or rental, as lessor, by the state or any municipality or county in the state, or any public corporation organized under the laws of the state, including, without limiting the generality of the foregoing, any corporation organized under Division 1 of Article 4 of Chapter 54 of Title 11. (4) The privilege or license tax on each person engaging or continuing within this state in the business of the leasing and rental of linens and garments shall be at the rate of two percent of the gross proceeds derived by the lessor from the lease or rental of the linens and garments. (b) Notwithstanding subsection (a), nothing shall prohibit a lessor subject to a state or local privilege or license tax from passing the amounts on to a lessee by adding the taxes to the leasing price or otherwise; provided, however, that all amounts passed on to the lessee shall be includable in the gross proceeds derived from the lease of tangible personal property which shall be subject to the privilege or license tax owed by the lessor. (c) The state and applicable local privilege or license taxes applicable to a lease or rental transaction to which a lessor is subject shall be determined as follows: (1) Except for automotive vehicles as provided in subdivision (2) and commercial aircraft as provided in subdivision (3), the following shall apply: a. When tangible personal property is delivered to the lessee by the lessor or his or her agent, the privilege or license tax levy shall be determined based on where the property is delivered. b. When tangible personal property is picked up at the lessor’s rental location by the lessee or his or her agent, the privilege or license tax levy shall be determined based on the rental location. (2) For automotive vehicles required to be registered pursuant to Section 32-6-61, each lease payment is considered a separate lease transaction and occurs in the location as provided below and the following rules shall apply: a. The privilege or license tax levy on any nonrecurring gross proceeds due at the inception of the lease to a new motor vehicle dealer or a used motor vehicle dealer licensed pursuant to Section 40-12-391, including any capitalized cost reduction or other fee that is retained by the dealer in connection with its initiation of the lease, shall be determined based on the location of the dealer where the lease was initiated. b. The privilege or license tax levy on gross proceeds other than those described in paragraph a., including the initial lease or rental payment and all subsequent lease or rental payments, shall be determined based on the garage address of the lessee as provided to the county licensing official. The lessor is considered to be engaging or continuing within this state in the business of leasing or renting tangible personal property when its lessee has a garage address within this state. (3) For commercial aircraft, which are aircraft used by certificated or licensed air carriers, the privilege or license tax levy on gross proceeds, including the initial lease or rental payment and all subsequent lease or rental payments, shall be determined based on the location of the aircraft when the aircraft is first entered into revenue service. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §2; Act 2001-636, p. 1242, §3; Act 2019-89, §1; Act 2021-221, §1; Act 2025-240, §3; Act 2026-111, §15.)

Ala. Code § 40-12-223 Exemptions.

40-12-223. Exemptions. There are exempted from the computation of the amount of the tax levied, assessed, or payable under this article all of the following: (1) The gross proceeds accruing from the leasing or rental of a film or films to a lessee who charges, or proposes to charge, admission for viewing the film or films. (2) The gross proceeds accruing from any charge in respect to the use of docks or docking facilities furnished for boats or other craft operated on waterways. (3) The gross proceeds accruing from any charge made by a landlord to a tenant in respect of the leasing or furnishing of tangible personal property to be used on the premises of real property leased by the same landlord to the same tenant for use as a residence or dwelling place, including mobile homes. (4) The gross proceeds accruing from the leasing or rental of tangible personal property to a lessee who acquires possession of the property for the purpose of leasing or renting to another the same property under a leasing or rental transaction subject to this article. (5) The gross proceeds accruing from any charge made by a landlord to a tenant in respect to the leasing or furnishing of tangible personal property to be used on the premises of any room or rooms, lodging, or accommodations leased or rented to transients in any hotel, motel, inn, tourist camp, tourist cabin, or any other place in which rooms, lodgings, or accommodations are regularly furnished to transients for a consideration. (6) The gross proceeds accruing from the leasing or rental of tangible personal property which the state is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of Alabama of 2022. (7) The gross proceeds accruing from the leasing or rental of nuclear fuel assemblies together with the nuclear material contained therein and other nuclear material used or useful in the production of electricity and assemblies containing ionizing radiation sources together with the ionizing radiation sources contained therein used or useful in medical treatment or scientific research. (8) A transaction in which the lessor leases a truck or tractor-trailer or semitrailer for operation over the public roads and highways and such lessor furnishes a driver or drivers for each vehicle, and the transaction shall be deemed to constitute the rendition of service and not a “leasing or rental” within the meaning of this article. (9) The gross proceeds accruing from the leasing or rental of vehicles in interchange between regulated motor carriers on a per diem basis. (10) The gross proceeds accruing from the leasing or rental of all structures, devices, facilities, and identifiable components of any thereof acquired primarily for the control, reduction, or elimination of air or water pollution, and the gross proceeds accruing from the leasing or rental of all materials used or intended for use in structures built primarily for the control, reduction, or elimination of air and water pollution. (11) The gross proceeds derived by the lessor, which term includes a sublessor, from the leasing or rental of tangible personal property when the lessor and lessee, which term includes a sublessee, are wholly-owned subsidiary corporations of the same parent corporation or one is the wholly-owned subsidiary of the other; provided, that the appropriate sales or use tax, if any was due, has been paid on the item of personal property; and provided further, that in the event of any subsequent subleasing of the tangible personal property to any person other than any sister, parent, or subsidiary corporation, any privilege or license tax due and payable with respect to that subsequent subleasing under the provisions of this article shall be paid. (12) The gross proceeds accruing from a transaction that involves the leasing or rental of vessels or railroad equipment which are engaged in interstate or foreign commerce, or both. (13) The gross proceeds accruing from the leasing or rental of aircraft, replacement parts, components, systems, sundries, and supplies affixed or used on the aircraft and all ground support equipment and vehicles used by or for the aircraft to or by a certificated or licensed air carrier with a hub operation within this state, for use in conducting intrastate, interstate, or foreign commerce for transporting people or property by air. For the purpose of this subdivision, the words “hub operation within this state” shall be construed to have both of the following criteria: a. There originates from the location 15 or more flight departures and five or more different first-stop destinations five days per week for six or more months during the calendar year. b. Passengers, property, or both are regularly exchanged at the location between flights of the same or a different certificated or licensed air carrier. (14) The gross proceeds derived by the lessor, which term includes a sublessor, from the leasing of tangible personal property under all of the following conditions: a. Prior to being leased under the lease subject to this exemption, the leased tangible personal property shall have been owned, or considered to be owned, for either Alabama or federal income tax purposes or both, or subject to acquisition pursuant to a binding contract, by the lessee or by a corporation, partnership, or other entity controlled by, or under common control with, the lessee. b. The leased tangible personal property, or the right to ownership thereof, shall have been acquired by the lessor from the lessee or a corporation, partnership, or other entity controlled by, or under common control with, that lessee and leased back to the lessee under a lease that is considered a lease and not a sale for either Alabama or federal income tax purposes, or both, and that has a term of not less than 15 years, except that the lessor and the lessee may agree in the lease or any subsequent amendment thereof for the termination of the lease on any date through purchase of the leased tangible personal property by the lessee, which right to purchase the property shall be exercisable solely at the option of the lessee. c. The appropriate sales or use tax levied by the state shall have been paid with respect to the acquisition or use of the leased tangible personal property, or, alternatively, the acquisition or use of that property shall be exempt by law from such sales or use tax. d. The leased tangible personal property shall be installed in or about an industrial plant or other real property that was specially constructed or modified for the location and use of the tangible personal property and that is owned, or considered to be owned, for either Alabama or federal income tax purposes, or both, by a corporation, partnership, or other entity controlled by, or under common control with, the lessee of such tangible personal property. e. The leased tangible property shall be used only by a lessee engaged in the iron and steel industry, and the exemption from the tax levied by this article shall apply only to the gross proceeds derived from leases that become binding contracts of the parties thereto within 180 calendar days following the date on which the act adding the exemption contained in this subdivision shall become effective. (15) The gross proceeds accruing from a motor vehicle lease transaction for a duration of at least 180 days with the federal government, or any state, county, or municipal entity within the state, including a public school board or an individual public school, or any entity eligible for a sales tax exemption under federal law or Section 40-23-5. (16)a. The gross receipts from the leasing or rental of aircraft replacement parts, components, systems, sundries, and supplies affixed to, used on, or that became part of, aircraft brought into the state and used, or to be used, by a certified or licensed air carrier to undergo conversion, reconfiguration, or general maintenance while temporarily within this state. 1. Under this subdivision, an aircraft shall be considered not permanently domiciled in Alabama during the term of the lease if either of the following non-exclusive conditions are true: (i) The hanger, airstrip, or other housing unit in which the aircraft is primarily based, departs from, and returns to in its normal operation is located outside of Alabama; or (ii) The purchaser’s headquarters is not in Alabama on the date of purchase, and the aircraft will be operated by either: (1) a certificated air carrier holding certificate of public convenience under 49 U.S.C. § 40102; or (2) a foreign air carrier or intrastate air carrier, as defined by 49 U.S.C. § 40102. b. The exemption provided in this subdivision shall not apply to county or municipal rental or lease taxes unless approved by resolution or ordinance adopted by the local governing body. c. The exemption provided in this subdivision shall be effective from September 1, 2025, to August 31, 2030. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §3; Acts 1973, No. 1130, p. 1906; Acts 1979, No. 79-336, p. 544; Acts 1986, No. 86-214, p. 282, §4; Acts 1988, 2nd Ex. Sess., No. 88-982, p. 705; Act 2021-221, §1; Act 2025-240, §4.)

Ala. Code § 40-12-224 Collection of Tax.

40-12-224. Collection of Tax. The provisions of this article shall be administered and the tax herein levied shall be collected in accordance with the procedures set forth in Article 1 of Chapter 23 of this title for administering and collecting the tax therein levied, and for such purposes there are hereby incorporated into this article by reference the provisions of Sections 40-23-7 through 40-23-12, Section 40-23-25, Section 40-23-27 and Sections 40-23-30 and 40-23-31, together with the definitions applicable to said sections contained in Section 40-23-1; provided, that wherever in the said provisions the term “gross proceeds of sales” or “gross receipts” shall appear, the same for the purposes of this article shall be construed to mean “gross proceeds” as defined in this article; provided further, that a sale of tangible personal property to any person engaging in the business of leasing or renting such tangible personal property to others, if such tangible personal property is purchased for the purpose of leasing or renting it to others under a transaction subject to the tax levied in this article, shall be deemed to be a “wholesale sale” or a “sale at wholesale” for the purpose of administering Article 1 of Chapter 23 of this title and Section 40-23-60; provided further, that a sale of tangible personal property previously purchased at wholesale for the purpose of leasing or renting under a transaction subject to the privilege or license tax levied in this article shall be deemed to be a “retail sale” or a “sale at retail” for the purpose of administering Article 1 of Chapter 23 of this title and Section 40-23-60, regardless of whether such sale is to the person who theretofore leased or rented the said tangible property or to some other person; provided further, in the event of the repeal of Article 1 of Chapter 23 of this title, such repeal shall not operate to eliminate the tax collection procedures contained therein to the extent they are incorporated in this article by reference, unless the legislation providing for such repeal shall clearly indicate such a result. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §5.)

Ala. Code § 40-12-226 Deposit in State Treasury.

40-12-226. Deposit in State Treasury. All taxes or other funds received or collected by the department under the provisions of this article shall be deposited in the State Treasury without delay. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §7.)

Ala. Code § 40-12-227 Disposition of Funds.

40-12-227. Disposition of Funds. The total proceeds of the taxes or other funds deposited in the State Treasury pursuant to Section 40-12-226 remaining after payment of the expenses of administration and enforcement of this article shall be distributed to the State General Fund. (Acts 1971, 1st Ex. Sess., No. 96, p. 166, §8; Acts 1988, 2nd Ex. Sess., No. 88-955, p. 680, §1; Act 99-650, 2nd Sp. Sess., p. 96, §1.)

Source: Alabama Legislature (alison.legislature.state.al.us)URL: https://alison.legislature.state.al.us/code-of-alabamaFetched: 10/20/2026