Since October 1, 1989, licensing officials throughout the state began collecting county and municipal sales and use taxes on all vehicle purchases. Act 89-691, enacted during the 1989 Regular Session of the Alabama Legislature, provides for the collection of taxes both on vehicles sold by licensed dealers and on casual sales between individuals.

Sales taxes on casual sales (sales between individuals) are collected when the purchaser applies for license registration at the courthouse. Rates are based on the tax rates in effect for vehicles in the county and municipality in which the purchaser resides. State sales and use tax on vehicle purchases is 2% of the net purchase price.

The state law requires licensed dealers to furnish all purchasers of new or used vehicles with an invoice or bill of sale which reports the separate amounts of state, county and municipal sales tax collected by the dealer at the time of purchase. The appropriate sales tax rates should be listed also.

All purchasers of vehicles are required to show their invoice or bill of sale when applying to the licensing official for vehicle registration. Registration is mandatory within twenty (20) calendar days of purchase date without tag penalty. If the licensed dealer has collected county and municipal sales taxes as reflected on the invoice, then no use tax is due. However, if municipal or county taxes are not collected at the time of purchase, the buyer will be required to pay the use tax applicable to vehicle sales which is in effect for the municipality or county in which the purchaser abides.

A county resident will always pay applicable state and county sales or use taxes on vehicle purchases. If the county resident buys a vehicle from a dealer in the city, then he may pay city sales tax to the dealer. A city resident will always pay applicable state, county and city sales or use taxes on vehicle purchases. If the city resident buys a vehicle from a dealer in a neighboring city and the dealer fails to collect city sales tax, then the city resident will pay city use tax at the time of vehicle registration.

The Alabama Legislature amended this law to include county and municipal sales and use tax on boat purchases effective on and after July 1, 1994. Sales and use tax must be paid prior to boat registration. All taxes collected by licensing officials are remitted directly to the appropriate municipal or county government.