For almost everyone reading this, the answer is whichever of the two states you actually live and work in. If you genuinely have a free choice, Mississippi is cheaper to form and cheaper to maintain: a $50 Certificate of Formation against Alabama’s $200, and a free annual report against Alabama’s Business Privilege Tax paperwork. Alabama counters with a lower top individual income tax rate and no annual report requirement for LLCs at all. The gap is real but small, and it is dwarfed by the cost of registering in the wrong state.
Both states are cheap places to run a small entity by national standards, and neither has the Delaware style incorporation industry that makes people overthink this. What follows is the fee schedule, the recurring obligations and the tax picture for each, drawn from the two Secretaries of State and the two revenue departments.
Start with the home state rule
An LLC is registered in one state and must qualify as a foreign LLC in every other state where it does business. That means if you live in Birmingham and form your LLC in Mississippi to save $150, you will very likely have to register that Mississippi LLC as a foreign entity in Alabama anyway. Now you are paying two states, keeping two registered agents and filing in two places, and you have saved nothing.
The exception is narrow. It applies to holding companies with no operations, to entities set up for a specific investment in the other state, and to businesses with a genuine physical presence in both. Everyone else should form where they operate. The same logic drives our comparison of Washington against a neighboring state for LLC formation, and it is the single most common mistake new owners make.
What it costs to open the doors
Alabama charges $200 to file a domestic LLC Certificate of Formation with the Secretary of State, and requires a Certificate of Name Reservation first, which costs $25. Since the Secretary of State began accepting filings directly, you no longer route the paperwork through a probate judge, though some counties still handle related records. Budget $225 in state fees to open.
Mississippi charges $50 for a domestic LLC Certificate of Formation, filed online through the Secretary of State’s business portal. A name reservation is $25 and is optional rather than required. Realistically you can open a Mississippi LLC for $50 in state fees.
Both states require a registered agent with a physical street address in the state. You can be your own agent if you live there and are willing to have your address in the public record. A commercial agent costs the same in either state, so it does not affect the comparison.
| Item | Alabama | Mississippi |
|---|---|---|
| Domestic LLC formation fee | $200 | $50 |
| Name reservation | $25, required before filing | $25, optional |
| Foreign LLC registration | $150 | See current SOS fee schedule |
| Annual report for LLCs | Not required (corporations pay $10) | Required by April 15, no fee |
| State entity level tax | Business Privilege Tax, exempt when tax due is $100 or less | Franchise tax on corporations, phasing out by 2028 |
| Top individual income tax rate | 5% above $3,000 single, $6,000 joint | 4.4% above the first $10,000 exempt |
| Corporate income tax rate | 6.5% | 0% to $5,000, 4% next $5,000, 5% above $10,000 |
| State sales tax | 4% general, 2% on vehicles, plus local | 7% general, plus limited local levies |
What it costs to keep the doors open
This is where the two states diverge in an interesting way. Mississippi requires every LLC to file an annual report with the Secretary of State, filed any time on or after January 1 and due by April 15. For a domestic LLC the report carries no fee. Miss it and you risk administrative dissolution, so put it on the calendar, but the cash cost is zero.
Alabama does not require an annual report from LLCs at all. The Secretary of State’s $10 annual report applies to domestic and foreign for profit corporations and professional corporations only. What Alabama does have is the Business Privilege Tax, a levy on net worth apportioned to Alabama. For taxable years beginning after December 31, 2023 there is a full exemption when the computed tax due is $100 or less, and entities in that position are not required to file the return. Most small LLCs land there. Larger LLCs, and LLCs with substantial net worth apportioned to Alabama, still compute and file, using Form PPT when taxed as a pass through entity and Form CPT when taxed as a corporation.
Mississippi’s franchise tax is levied on corporations, not on partnerships. It sits at $0.75 per $1,000 of capital above $100,000 for tax year 2025, drops to $0.50 per $1,000 for 2026 and $0.25 for 2027, and is repealed effective January 1, 2028, with a $25 minimum while it lasts. A single member LLC or a multi member LLC taxed as a partnership is generally outside its scope, but an LLC that elects to be taxed as a corporation can be pulled in. That is a question for your accountant, not a blog.
How the profits get taxed
By default an LLC is a pass through: the entity itself pays no income tax and the profit lands on the owners’ individual returns. So the individual rate is what usually matters.
Alabama’s individual income tax runs 2 percent on the first $500 of taxable income for a single filer, 4 percent on the next $2,500 and 5 percent on everything above $3,000. For joint filers the brackets double, so 5 percent applies above $6,000. In practice Alabama is a 5 percent state for any profitable business owner.
Mississippi exempts the first $10,000 of taxable income entirely, then applies a flat rate to the rest. The Department of Revenue currently states that rate as 4.4 percent, and 2025 legislation schedules further reductions to 3.75 percent in 2027, 3.5 percent in 2028, 3.25 percent in 2029 and 3 percent in 2030, with additional conditional cuts possible after that if state reserve and revenue triggers are met. Married couples filing jointly each get the $10,000 exemption.
Mississippi therefore has the lower individual burden today, and the gap is scheduled to widen. If you elect corporate treatment instead, Alabama’s flat 6.5 percent corporate rate sits above Mississippi’s graduated schedule of 0 percent on the first $5,000, 4 percent on the next $5,000 and 5 percent above $10,000.
The costs that are not on the fee schedule
If your LLC sells goods at retail, sales tax matters more than any filing fee. Mississippi’s general state sales tax rate is 7 percent, one of the highest state level rates in the country. Alabama’s general state rate is 4 percent, with 2 percent on automotive vehicles, but Alabama layers county and municipal sales taxes on top aggressively enough that combined rates in many Alabama cities land in the same neighborhood as Mississippi’s. Look up the actual combined rate for the jurisdictions you sell into rather than comparing state rates.
Both states also require business licenses at the county or municipal level, and Alabama’s local business license regime is notably fragmented. If you will operate in several Alabama cities, price that out early. Owners weighing broader location decisions may find our comparisons of Virginia against Florida and of Georgia for real estate investment useful, since the same tax and fee framework applies.
Which one should you actually pick
Pick Mississippi if you live there, if you are starting lean and the $150 formation difference matters, or if you expect meaningful personal income from the business and want the lower flat rate plus the $10,000 exemption. The free annual report is a genuinely low friction obligation.
Pick Alabama if you live there, if you want the simplicity of no recurring Secretary of State filing for the LLC, or if your business will have very little net worth apportioned to Alabama and therefore falls inside the privilege tax exemption. Alabama’s higher formation fee is a one time cost that disappears from the math within a year or two.
If you are genuinely indifferent because the business is purely online, form in the state where you file your personal return. That keeps you to one registered agent, one annual obligation and one set of rules.
Frequently asked questions
Can I form in Mississippi to avoid Alabama’s fees if I live in Alabama?
You can form there, but you will almost certainly need to register that Mississippi LLC as a foreign LLC in Alabama, which costs $150 plus an Alabama registered agent. You end up with two states to maintain and no savings. Form where you operate.
Does an Alabama LLC have to file an annual report?
No. Alabama’s $10 Secretary of State annual report applies to domestic and foreign for profit corporations and professional corporations only. LLCs may still have a Business Privilege Tax obligation, but for taxable years beginning after December 31, 2023 there is a full exemption when the computed tax is $100 or less.
What happens if I miss the Mississippi annual report?
The report is free but not optional. It can be filed on or after January 1 and is due by April 15 each year. Entities that fail to file risk administrative dissolution by the Secretary of State, which means losing good standing and, in practice, the liability protection you formed the LLC to get.
Is Mississippi’s franchise tax going away?
The corporate franchise tax is being phased down and repealed effective January 1, 2028. It is $0.75 per $1,000 of capital above $100,000 for tax year 2025, $0.50 for 2026 and $0.25 for 2027, with a $25 minimum. It applies to corporations, so most LLCs taxed as partnerships are outside it.
Which state is cheaper over five years?
Mississippi, for a typical small LLC. You save $150 at formation and pay nothing for the annual report, while an Alabama LLC saves nothing at formation and may or may not owe privilege tax. The five year difference is roughly the cost of one accountant’s hour, which is why operating location should decide.
The bottom line
Mississippi is the cheaper state to form and maintain an LLC in, and its individual income tax is lower today and scheduled to fall further. Alabama asks more up front but then leaves LLCs alone, with no annual report and a privilege tax that most small entities are exempt from. Both are inexpensive by national standards.
Confirm the current numbers before you file, because fee schedules and rate phase downs both move. Pull the fees from the Alabama Secretary of State and the Mississippi Secretary of State, check the privilege tax exemption at the Alabama Department of Revenue, and then have a licensed professional confirm the tax classification you plan to elect.
