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ADOR Issues Guidance on Taxability of Computer Software

Posted: June 19, 2019

MONTGOMERY, June 19, 2019– The Alabama Supreme Court recently upheld a lower court decision finding that a series of transactions involving the sale of computer software and related equipment was subject to sales tax. The case, Ex parte Russell County Community Hospital, LLC, Case No. 1180204, was decided on May 17, 2019.  In reaching its decision, the Court examined the taxability of the conveyance of computer software versus the taxability of programming and other services that may accompany the conveyance.

After reviewing the existing law addressing the taxability of computer software, the Court concluded that the software transactions at issue in the case were taxable. The Court’s decision is consistent with the department’s long-stated administrative stance that software transactions are taxable, but separately stated or invoiced services that may attend the conveyance of software are not subject to the state’s sales or use tax levies.

The department is undertaking a review of its related administrative rules, which will be updated to ensure that the terminology used to demonstrate this distinction is consistent with that used by the Court in the Ex parte Russell County decision.