The Alabama Supreme Court ruled that all software, including custom software, is tangible personal property subject to Alabama sales tax. The taxpayer filed refund claims for sales tax paid on computer software and accompanying equipment, claiming that an Alabama Department of Revenue regulation exempted these purchases from the sales tax as “custom software programming.” The Alabama Supreme Court affirmed the denial of the refund claim, reasoning that the purchases at issues were software and that “there is no distinction for Alabama sales-tax purposes between canned or custom software.” In the majority’s view, “[a]ll software is tangible personal property and thus subject to sales tax.” The court clarified, however, that the act of customizing the software for a particular user is a nontaxable service when separately invoiced by the vendor. One concurring opinion urged the legislature “to clarify how a transaction involving software and services is to be documented and invoiced.” However, the dissenting opinion noted that the majority had ignored the Department’s regulation because the taxpayer’s software fit within the stated definition of “custom software programming,” which includes “separately stated charges for modifications to a canned computer software program when such modifications are prepared to the special order of the customer.” Russell Cty. Cmty. Hosp., LLC v. State Dep’t of Revenue, No. 1180204, 2019 WL 2150922 (Ala. May 17, 2019).
