Alabama is the home of the Talladega Superspeedway, and when it comes to buying or leasing a car in the state of Alabama it also appears to be a process and fee structure meant to allow you to get right in the fast lane.

Some items to know about vehicle sales, financing, and leasing in Alabama:

  • Alabama has a very low state sales tax rate of about 2%, but municipalities within the state can assess additional sales/use tax of up to 4% – so it’s quite likely that the majority of your sales tax burden will be based on your specific location, be sure to keep that in mind when considering various offers from dealers around the state.
  • In addition to regular vehicle registration fees Alabama also imposes an “ad valorem” tax on vehicles – which is to say a tax on the value of the vehicle as personal property regardless of whether it’s registered for use.  The terminology is used in only a few other places, but the concept is also adopted in other states where the term “personal property tax” or “tangible property tax” is used – but has the same outcome.
  • Manufacturer rebates are taxable – meaning in Alabama these are treated like a payment/credit and not a reduction in the taxable price of the vehicle.
  • There is a distinct lease tax in Alabama at the rate of 1.5%, and again, municipalities can add a surcharge onto the lease tax if they so choose.  So this means that not only will you only pay on the portion of the vehicle you use during your lease, but you’ll also pay at a lower rate on the gross proceeds of the lease.
  • There is one thing lost when leasing in Alabama versus buying/financing – the sales tax provision enables the gross allowance of a trade-in vehicle to be subtracted from the taxable sale price.  However, there is no similar ability to reduce the amount subject to the lease tax, because even the cap cost reduction in a lease is subject to the lease tax not the sales tax.
  • There is no cap on the documentation fee a dealer may charge in Alabama.  The average fee that dealers impose is around $450-$500, although there have been reports of fees around $900 on the high end, so the most important thing is to ask the dealership what their fee is while negotiating your deal and ensure you consider this when finding the best deal for you.

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