Alabama
Updates
What You’ll Learn
If you’re a nonprofit in Alabama, or you’re a nonprofit considering fundraising or other activities in Alabama, you must understand the requirements that Alabama has established for nonprofits operating in the state.
How can you become familiar with these laws? Where should you start?
Start here. This state profile includes the basic requirements nonprofits must consider. Reading the profile and implementing appropriate compliance measures will help you prepare your organization for success in Alabama.
Getting to Know the State Nonprofit Corporation Law
Background
*Important primarily for nonprofits incorporated in Alabama
Emma Woodhouse, handsome, clever, and rich, with a comfortable home and happy disposition, seemed to unite some of the best blessings of existence; and had lived nearly twenty-one years in the world with very little to distress or vex her. She was the youngest of the two daughters of a most affectionate, indulgent father; and had, in consequence of her sister’s marriage, been mistress of his house from a very early period. Her mother had died too long ago for her to have more than an indistinct remembrance of her caresses; and her place had been supplied by an excellent woman as governess, who had fallen little short of a mother in affection.
- Emma, Jane Austen
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Corporate Governance
Conflict Transactions: ALA. CODE § 10A-3-2.41; ALA. CODE § 10A-3-2.42. Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.
Director Standards of Conduct: No state statute. Need a refresher on the role of directors? See Bylaws Module 6: Directors.
Members: Eligibility and Statutory Powers: ALA. CODE § 10A-3-2.01; ALA. CODE § 10A-3-2.05. Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.
Indemnification: ALA. CODE § 10A-3-2.43. Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: No specific nonprofit religious corporations act. Alabama’s nonprofit corporation law mentions the option for nonprofit corporations to incorporate for religious purposes. However, the law lacks both: (a) specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs and (b) an option to incorporate expressly as a nonprofit religious corporation. For nonprofit corporation law, see ALA. CODE § 10A-3-1.04; for religious corporation law, see ALA. CODE § 10A-20-1 (allowing for bishops of dioceses to be “corporations sole.”) Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Understanding Religious Liberty in this State
Case Study
*Important for all nonprofits doing business in Alabama, whether incorporated in Alabama or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Alabama has passed a constitutional amendment protecting the religious free exercise of all persons and requiring government attempts to burden religious liberty to satisfy strict scrutiny, providing one of the highest standards for religious freedom protections in the country. ALA. STATE CONST., Amendment 622, known as the Alabama Religious Freedom Amendment. Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
Constitutional Protections for Free Exercise: The Alabama Constitution, in the constitutional text itself, provides stronger protections for religious free exercise or worship than the federal First Amendment, as incorporated. See ALA. STATE CONST., art. I, § 3; Amendment 622, § V
State Blaine Amendment: The Alabama Constitution contains a Blaine Amendment that could prevent the participation of faith-based schools in generally available public benefit programs on the same terms as similarly situated secular schools. This is not as broad as a general Blaine Amendment, which prohibits all aid to faith-based institutions, but is still detrimental to the work of faith-based institutions. Current US Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. See ALA. STATE CONST., Art. XIV, § 263. Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Alabama does not currently have a statewide sexual orientation and gender identity law. Be sure you understand whether any local regulations, such as this City of Birmingham ordinance, apply to your organization.
Religious Freedom and Public Accommodation Laws: Alabama has no nondiscrimination laws related to public programming and facilities. Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Alabama law provides that religious worship can only be prohibited or restricted by an emergency order that applies equally to all comparable secular entities in the jurisdiction, as required by Tandon v. Newsom.
Key Employment Laws and Regulations
In addition to the federal anti-discrimination employment law, Title VII of the Civil Rights Act of 1964, Alabama prohibits employers from discriminating on the basis of age. An employer is any person who has more than twenty employees for twenty or more weeks each year. No religious exemptions apply to this requirement. Local governments may also have employment-related regulations. An attorney can help you understand what requirements apply to your organization. ALA. CODE § 25-1-20; ALA. CODE § 25-1-22.
Religious Freedom for Faith-Based Employers: Alabama’s nondiscrimination laws related to employment are narrow and generally would not jeopardize the autonomy of religious organizations. Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here.
Religious Freedom for Employees: (no express statutory protections present)
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Alabama but incorporated elsewhere
If you are fundraising or conducting activities in this state, you must consider whether you need to register as a foreign nonprofit corporation. The state law requires entities that are “conducting a…not-for-profit activity” to register. An attorney can help you decide whether you need to register based on the type and volume of activities you have in this state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for Both Alabama and Foreign Nonprofits
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
This state generally requires organizations to register prior to soliciting donations. However, the registration requirement has a religious exemption. Religious organizations must apply to receive the exemption—it is not automatic.
This state has a broad definition of what constitutes solicitation and does not specify what minimum activity level triggers registration requirements.
However, organizations which: (1) do not receive more than $25,000 in total contributions annually, and (2) do not use a paid solicitor are exempt from registration. Alabama’s law does not explain whether the $25,000 total contribution calculation is for gross contributions received, regardless of origin, or for Alabama-specific contributions only.
If You're Fundraising In Multiple States, Make Sure You Understand the URS
In this state, organizations that are required to register have the option of registering through the Unified Registration Statement, which is a standardized charitable registration accepted in many states. Using the URS, rather than a state-specific registration form, has pros and cons. The URS typically must be submitted by mail. Alabama has an online filing system and using that system may be more efficient than completing and mailing the URS manually.
Additionally, creating the online profile will save the organization time in preparing future annual reports, which are processed using the same system.
Evaluate Whether You'll Need a Registered Agent
If you are fundraising in this state, you must consider completing a foreign not-for-profit registration and designating a registered agent in the state. More information about this is included below.
Follow the Rules About Communicating with the Public
This state does not require organizations to post specific language when conducting charitable solicitations unless the organization is working with a professional fundraiser.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Alabama, whether incorporated in Alabama or elsewhere
In this state, organizations that have received federal income tax exemption under IRC § 501(c)(3) are automatically exempt from state income tax. Some organizations may choose to send a copy of their IRS determination letter to the state department of revenue to indicate the organization’s position that it qualifies for the exemption. Note that, although an organization may be exempt, if it has unrelated business taxable income (UBTI) that is subject to federal taxation, that UBTI may be subject to state income tax. (ALA. CODE § 40-18-32.)
In Alabama, almost all business entities, even out-of-state business entities, must pay an annual Business Privilege Tax. However, entities operated exclusively for religious purposes (such as a faith-based nonprofit) are exempt from this tax. See ALA. CODE § 40-14A-43. Some organizations may choose to send a copy of their IRS determination letter to the Alabama Department of Revenue to indicate the organization’s position that it qualifies for the exemption.
It is also important to consider whether your organization might be eligible for sales and use tax or property tax exemption. In this state, federal § 501(c)(3) status does not automatically provide an exemption from sales, use, and property taxes. More information about the sales and use tax exemptions and applications is available on the Alabama Department of Revenue website and in the Alabama administrative rules. An accountant or attorney can provide answers to specific questions regarding your organization’s eligibility for exemption.
Corporate Income Tax Statute
Alabama imposes a corporate income tax but automatically exempts organizations with federal 501(c)(3) exempt status. Some exempt organizations may need to fill an annual “no tax due” form. Ala. Code § 40-18-2(a)(3)
Corporate Franchise Tax Statute
What You Need to Know About Sales Tax
Sales and Use Tax: Alabama imposes a sales and use tax on religious organizations’ sales and purchases and only provides limited exemptions for certain items. ALA. ADMIN. CODE r. 810-6-3-.07.05
State Tax Treatment of Unrelated Business Income: ALA. CODE § 40-18-32
State Sales and Use Tax and Required Registrations: ALA. CODE § 40-23-66; ALA. CODE § 40-23-4; ALA. CODE. § 40-23-62
State-Specific Special Requirements
Miscellaneous
Useful Links
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Legal Disclaimer
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington