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United States Sales And Use Tax Series (Alabama Part #1)



Aaron Giles3

Alabama Sales Tax Exemptions

Alabama levies a 4% state sales tax on all purchases of tangible personal property unless the transaction is specifically exempted. There are more than 200 city and county sales taxes imposed in addition to the 4% state sales tax rate. Alabama’s range of sales tax rates is between 4% and 11%.

The consumers use tax is imposed on tangible personal property brought into Alabama for storage, use, or consumption in the state when the seller did not collect seller’s use tax on the sale of the property. The tax rates due are the same rates as for sales tax. Returns are to be filed on or before the 20th day of the month following the month in which the purchases were made. For example, purchases made in the month of January should be reported to the state of Alabama on or before February 20th.

Alabama Sales Tax Exemptions For The Healthcare Industry

Alabama sales tax law applying to hospitals and other entities within the healthcare industry essentially bi-furcates these facilities into two distinct groups for purposes of taxability.  Any entity whose name appears on the list of public hospitals or specifically named charitable organizations in Alabama Rule 810-6-3-.07.05 is entitled to purchase all items and materials tax exempt.  For entities not specifically named in that list, nearly all purchases are subject to tax because the Alabama Department of Revenue considers the hospital, physician’s clinic or other healthcare entity to be the consumer of all items purchased and used in providing healthcare services to its patients.  One of the few exemptions afforded to these private healthcare entities not listed in Alabama Rule 810-6-3-.07.05 are drugs as defined in Alabama Code §40-23-4.1.  Alabama defines the term drug as “any medicine prescribed…for human consumption or intake.”  For more information about what items not traditionally considered to be “drugs” will qualify for this sales tax exemption, please see the Research Bulletin written by our sales tax consultants about Alabama’s Absorbable Medicines Sales Tax Exemption.

Alabama Sales Tax Exemptions For The  Manufacturing Industry

Alabama offers a reduced machine rate for Alabama manufacturers.  Qualifying items vary at the state, county and city levels which make it a challenge for taxpayers to truly maximize the benefit of the sales tax exemption they’re entitled to claim.  Also, some local jurisdictions offer the reduced machine rate while others do not.  Because many local jurisdictions in Alabama administer their own sales and use taxes, pursuing refunds for overpayments of Alabama sales and use taxes is more difficult and requires more effort than states who administer all taxes at the state level.  In Alabama, sales and use tax refund claims often need to be filed with each distinct jurisdiction rather than as a consolidated refund claim.  Examples of some items which qualify for Alabama’s reduced machine rate at the state level and in most jurisdictions include: production machinery purchases, repair parts and labor to production machinery and equipment, and consumables including lubricants and fuel.  Items which become part of the finished product for resale also qualify for a complete exemption from Alabama sales and use tax both at the state and local levels.  Our sales tax consultants have a track record of helping Alabama manufacturers discover additional opportunities for savings as a result of the years of experience we have working with the state and local taxing authorities.

Alabama Sales Tax Exemptions For Software

In Russell County Community Hospital & Medhost of Tennessee, Inc. v. State of Alabama Department of Revenue, Agile’s sales tax consultants filed an appeal with the Alabama Tax Tribunal in June of 2016 after sales tax refund claims related to software purchases were denied.  Agile believed that per the definition provided in Section 5 of Alabama Rule 810-6-1-.37 canned software that is adjusted to the specifications or requirements of a specific purchaser becomes non-taxable custom software.  Agile also cited the ruling in AL HealthSouth Corporation v. State of AL Dept. of Revenue, 8/10/2006 in which HealthSouth’s purchases of canned software that was adjusted to fit HealthSouth’s needs was determined to be exempt custom software.  Chief Tax Tribunal Judge Bill Thompson agreed with Agile’s position in his ruling stating that “only unmodified computer software sold to nonexempt customers” is subject to Alabama sales or use tax.  As a result of this victory by Agile Consulting Group’s sales tax consultants, taxpayers can feel confident claiming an Alabama sales tax exemption on software purchases which have any degree of adjustment or configuration.

For more information on Alabama sales tax exemptions please visit the sites shown below.

Alabama Sales And Use Tax Exemptions Information

Alabama State Main Sales and Use Tax Page

Alabama Sales and Use Tax Statutes

Alabama Sales and Use Tax Rules

Alabama Sales and Use Tax Forms

Have a sales and use question? Contact Aaron Giles.

 

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Aaron C. Giles is the Founder and President of Agile Consulting Group. Aaron spent five years working within the specialty niche of Sales & Use Tax at Brown & Associates before forming his own firm in 2005. He has worked hundreds of audits in states all across the U.S. during that time and has delivered savings of over $75M in the form of refunds and credits to his clients. Today, he leads a group of talented, detail-oriented colleagues who focus exclusively on Sales & Use Tax.

Some of our firms’ greatest achievements have come in successfully arguing new and unique perspectives to existing tax law in various states enabling our clients to claim exemptions on categories of purchases previously held to be taxable. Included in these victories are: communication services taxes for religious nonprofit hospitals in FL, bulk purchases of drugs in VA, specific surgical tools and instruments for healthcare providers in TX, printing plates in GA, railroad utilities in KY, and most recently software in AL.