Alabama Amends Rule on Contractor Liability

Feb 5th, 2016

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.