HB4 Alabama 2020 Session

Summary

Primary Sponsor

Mike Holmes

Republican

Session

Regular Session 2020

Title

Taxation, single rate consumption tax on goods and services established; state income tax and state sales and use tax and other taxes abolished, repeal various sections, Secs. 40-5-48, 40-29-122 added; Secs. 40-2A-4, 40-2A-18 am'd.

Summary

HB4 would repeal Alabama’s current tax system and replace it with a broad, single-rate consumption tax on goods and services, funded partly by a monthly rebate to eligible families.

What This Bill Does

If enacted, it would abolish the income tax and many other taxes and replace them with an eight-and-three-hundredths percent consumption tax on gross payments for taxable property or services. The tax would follow a destination-based rule (taxes are based on where the goods are used or consumed) and would apply to most purchases, including government purchases and financial intermediation services. The bill also creates a monthly rebate for qualified families, plus several credits and transitional measures to ease the switch, and beefs up tax administration with seller registration, reporting, penalties, and a taxpayer advocate.

Who It Affects

• Alabama residents and families who would pay the new consumption tax on final purchases, with eligible households receiving a monthly rebate determined by the tax rate and the monthly poverty level.
• Businesses, sellers, and financial intermediaries who would collect and remit the tax, register with the state, maintain segregated tax accounts for funds collected, and face penalties for noncompliance; certain sectors (e.g., financial intermediation, government enterprises) have special rules.

Key Provisions

• Repeals numerous Alabama taxes (income tax, corporate tax, sales/use tax, estate/gift taxes, and others) and replaces them with a broad-based consumption tax at 8.03% on gross payments for taxable property or services.
• Implements a destination-based consumption tax structure and defines how to allocate taxes for tangible property, services, real estate, and other taxable items; taxes government purchases and financial intermediation services; includes out-of-state and residency rules.
• Establishes the Alabama Economic Freedom Act and sets conflict resolution with Chapter 23 for administration and collection of the new taxes; updates taxpayer rights under Chapters 40-2A and related sections.
• Creates a monthly consumption tax rebate for qualified families (based on monthly poverty level) and requires annual (or revised) registrations to determine family eligibility and payment recipients.
• Introduces multiple credits to ease transition and reduce tax burden, including business use conversion, intermediate/out-of-state sales, administration, bad debt, insurance proceeds, and transitional inventory credits.
• Requires seller registration, separate segregated accounts for collected taxes (with size-based security for large sellers), penalties for noncompliance, a Taxpayer Advocate, and provisions for refunds, installments, and confidentiality.
• Contains transition provisions for inventory and work-in-progress, de minimis exemptions, and special rules for not-for-profit organizations and government enterprises during the transition.
• Effective date stated as January 1, 2020, with various transition and implementation details throughout the act.

AI-generated summary using openai/gpt-5-nano on Feb 22, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation