Bradley attorney Bruce Ely was quoted in Law360 Tax Authority on the Alabama Department of Revenue’s proposed amendment to its regulations concerning the taxability of computer software to reflect a recent Alabama Supreme Court decision finding that all software is subject to sales tax. The changes are intended to clarify that the state’s highest court reinforced the department’s stance that all software, whether canned or customized, is subject to sales tax, but that separately stated services that customize software are not taxable.
Ely said he was both “surprised and disappointed” that the department characterized the court’s decision as consistent with existing law. According to Ely, the decision was instead a landmark case in the state that represented a significant departure from the department’s guidance.
“For the department to interpret the court’s ruling as merely reflecting current law is a bit frightening, and inconsistent with their own longstanding regulation, issued soon after the same court decreed in 1996 that canned software was now taxable, but only on a prospective basis,” Ely said.
If the department doesn’t specify that the regulation’s changes will only be enforced prospectively, Ely said the amended rule could spur concerns that companies might be retroactively assessed sales tax on customized software purchases in years they weren’t even aware they were responsible for the tax.
“You have thousands of purchases and vendors of software that have relied on that regulation for 20-plus years,” he added.
The complete article, “Ala. Proposes Software Tax Rule Updates After Court Ruling,” first appeared in Law360 Tax Authority on Sept. 4, 2019.