Alabama clarifies computation of local tax
- Oct 27, 2016 | Gail Cole
Determining the proper rate of sales tax to charge isn’t always evident. When consumers enter a store, purchases a book, and take it with them, the rate in effect at the store location applies. But whenever a sales transaction involves a delivery, calculating the proper tax can quickly become complicated — so much so that the Alabama Attorney General was asked to provide guidance on the issue.
“Where is local tax due when parties to a retail sales transaction execute an explicit agreement to allow title to transfer at the place of the sale and not at the time of delivery?”
Sales and use tax rates and rules vary by location, and it’s impossible to properly tax a sale without knowing which location applies: the retailer’s or the point of delivery. Two sections of the Alabama Code are relevant here:
- “Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods” (Section 7-2-401(2)).
- “[A] transaction shall not be closed or a sale completed until the time and place when and where title is transferred by the seller or seller's agent to the purchaser or purchaser's agent, and for the purpose of determining transfer of title, a common carrier or the U. S. Postal Service shall be deemed to be the agent of the seller, regardless of any F.O.B. point and regardless of who selects the method of transportation, and regardless of by whom or the method by which freight, postage, or other transportation charge is paid. Provided further that, where billed as a separate item to and paid by the purchaser, the freight, postage, or other transportation charge paid to a common carrier or the U.S. Postal Service is not a part of the selling price” (Section 40-23-1).
Generally, tax rates and rules are based on the point of delivery. However, that’s not always the case; there are at least three different scenarios. The opinion of the Attorney General explains:
- Local tax is due in the jurisdiction where title to the goods is transferred, which is at the time of delivery “unless explicitly agreed otherwise.”
- If an agreement allows title transfer at the place of sale and delivery is not by common carrier, then local tax is due where the sale takes place and not the point of delivery.
- However, if an agreement allows title transfer at the place of sale and delivery is by common carrier, then local tax is due in the jurisdiction where the delivery is completed.
Read the full opinion here.
Sales tax rules vary by state and even locality, and getting them right is essential to getting sales tax right. Tax automation software facilitates compliance by automatically apply the proper rates and rules to each transaction. Learn more.