Alabama Department of Revenue Issues Guidance on Taxability of Software

The Alabama Department of Revenue recently released its initial guidance on the taxability of sales of computer software in light of the Alabama Supreme Court's decision in Ex parte Russell County Community Hospital (May 17, 2019).  The Department's initial guidance can be found here.

The Alabama Supreme Court's decision can be found here.

In the Court's plurality opinion, the Court held that the hospital was not entitled to the refund of sales taxes claimed on the purchase of computer software.  While the majority of the justices concurred in this conclusion, only two actually participated in the main opinion that also concluded that all software, whether canned or customized is subject to sales tax in Alabama.  That conclusion stands in contrast to the Court's previous decision in Wal-Mart Stores, Inc. v. City of Mobile, 696 So.2d 290 (Ala. 1996), in which it held that customized software was not subject to sales tax.  To be clear, the Court here, while refusing to distinguish between canned and custom software, did state that charges for services for "determining a particular software user's needs, designing and programming new software for a particular user, modifying or configuring existing software programs to meet a particular user's needs, installing software, and training users to operate software," if separately stated and invoiced, are nontaxable.

It remains to be seen how the Alabama Department of Revenue alters its longstanding regulation on this issue in light of the decision in Ex parte Russell County Community Hospital.  We expect that the Department will work in the near future to rewrite Regulation 810-6-1-.37, which currently indicates that customized software is not subject to sales tax.  So, stay tuned for more on this in the coming months.

Alabama's 2018 Back-To-School Sales Tax Holiday is July 20-22

Alabama's 2018 Back-To-School Sales Tax Holiday is July 20-22

After Alabama lawmakers decided last year to move up the dates to July, Alabama's annual sales tax holiday for school-related items for 2018 is set for July 20-22.  For details on what goods are exempt, click here.

If you are curious which cities and counties are participating in this year's sales tax holiday, then click here.

No Local Tax Exemptions on Food

Recently, Alabama's Attorney General released an opinion (see http://www.ago.alabama.gov/pdfopinions/2009-092.pdf) in which he concluded that an Alabama municipality could not exempt food from the local sales tax, even if it wanted to do so, since the state did not exempt food from the state level tax.

This is an important conclusion, not only because it sidetracks, at least temporarily, the substantial efforts of the those attempting to lessen the impact of Alabama's tax system on those least able to pay those taxes by exempting goods that all people need for survival, such as food. However, the opinion also has much broader implications.

In particular, this opinion confirms that local jurisdications must follow state law on sales and use tax issues, even if the local jurisdiction wishes to do otherwise. This has been argued for years by local jurisdictions, even though it was essentially put to rest by the Alabama Court of Civil Appeals' decision in Yelverton's in 1997.

What do you think about local jurisdictions attempting to exempt food from sales tax if the state won't do so? Do you have any concern that if allowed to take a position different from the state on this issue that local jurisdictions will attempt to do so on other issues?