Alabama adopted changes to its rule about the taxability of purchases made by contractors.
The changes explain the way the courts of Alabama have determined a contractor's tax liability. The courts developed a three-part test. If contractors meet the test, sales of building materials to the contractors are taxable retail sales instead of nontaxable sales for resale. Under the test, a sale is taxable when (1) the taxpayer is a contractor, (2) the materials purchased are building materials, and (3) the materials become part of real estate. A taxpayer can be considered a contractor even when the actual installation is performed by a third party.