Alabama Issues Guidance on Taxability of Computer Software

Jul 8th, 2019

The Alabama Department of Revenue recently issued a statement on the Alabama Supreme Court's decision in Russell County Community Hospital v. Dept. of Revenue, Dkt. No. 1180204. In this May 2019 decision, the Court explained how tax applies to sales of software and related services. The Court concluded that all sales of software are taxable, and it does not matter whether the software is prewritten or custom-written for a specific purchaser. The Court noted that separately stated charges for computer programming are not by themselves taxable.

In its statement, the Alabama Department of Revenue explains that this decision was consistent with the Department's long-stated stance that software transactions are taxable, but separately stated or invoiced services are not taxable. The Department is reviewing its administrative rules to ensure this distinction is presented in a way that it is consistent with the Court's analysis.