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Software Companies Watch Out for Alabama Customers

Most software companies are familiar with California sales tax rules which generally imposes sales tax on off-the-shelf software and exempts customized software from sales tax. Many states have similar rules.

Watch out for Alabama. In May, the Alabama Supreme Court ruled that the sale of computer software in Alabama is subject to sales tax, even if it's customized in whole or in part for a particular user.

If you think that not having an office or employees in Alabama exempts you from sales tax collection in Alabama, think again.

The effect of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. on June 21, 2018, is that an out-of-state seller with no physical presence in Alabama (i.e., remote seller) is required to collect and remit Alabama sellers use tax through the Simplified Sellers Use Tax (SSUT) program if total retail sales (taxable and nontaxable) into Alabama for the previous calendar year are above $250,000.

For a consultation on sales tax or income tax for multi-state businesses contact me today.

Richard Pon CPA, CFP