Alabama – Alabama Supreme Court Holds that All Software is Subject to Sales and Use Tax, While Confirming that Separately Invoiced Services for Custom Software are Not Subject to Tax

In a recent decision, the Alabama Supreme Court held that the sale of computer software, whether “canned” or customized, is subject to Alabama sales and use tax, while confirming that separately invoiced services for custom software programing accompanying the conveyance of software are nontaxable. The case is styled Ex parte Russell County Community Hospital, LLC and was decided on May 17, 2019.

In a series of transactions between February 2012 and October 2014, Russell County Community Hospital, LLC (RCCH) purchased computer software and equipment from Medhost of Tennessee, Inc. (Medhost). RCCH contracted with Medhost to have Medhost install and implement the software and equipment at the hospital facility operated by RCCH. Medhost collected and remitted approximately $18,000 in sales tax in connection with the transaction. Subsequently, RCCH petitioned the Alabama Department of Revenue (the Department) for a refund of the sales tax paid on the transaction on the theory that the software was nontaxable custom software under Department regulations and that the charges represented charges for services rendered and not for taxable tangible personal property. The Department denied RCCH’s request for a refund.

For The Full Story: JD Supra

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by baker donelson
june 11, 2019