Alabama – Tax Due on Full Retail Sales Price Charged to Customers

SALT Report 1778 – An Alabama administrative law judge ruled that a Taxpayer who operates a hearing aid center was liable for sales tax on the full amount received from its customers.  The Taxpayer sells hearing aids to the public and also provides maintenance and repair services as needed.   Generally, the Taxpayer does not maintain an inventory of hearing aids but instead, will special order a hearing aid for a specific customer and then program the hearing aid to fit the needs of that customer.

During an audit it was discovered that the Taxpayer only charged its customers sales tax on the wholesale cost of the hearing aids.  However, Code of Alabama 1975, §40-23-1(a)(6) requires that sales tax be collected on the full amount received by a seller from a customer.  Further, sellers are required to collect sales tax on labor or service charges regardless of whether they are included in the total price of the product or billed as a separate item if the labor or service is to prepare the product for sale and is performed before the sale is closed.

The Judge ruled that since Alabama law clearly requires sellers to collect sales tax on the full purchase price, the Taxpayer was liable for the uncollected taxes and a judgment was entered in the amount of $7,429.17.

For Further Information:

Alabama Department of Revenue – Administrative Law Division No. S. 12-323