Sales Tax Articles
Sales Tax State Activity Update - January 2007
Can't Touch This! Do Electronic Photos Count as Real Property?
It was reasoned that the retail sale of goods that can now be delivered electronically should not be taxed differently than the sale of those goods delivered by traditional means. In all cases, the true object of the transaction is the sale of the goods.
Background
The Taxpayer is a professional photographer, who took digital photographs as directed by the customer. He then transmitted the digital images to the customer via compact disc, over the internet, or by e-mail
The Alabama Department of Revenue (DOR) audited the Taxpayer and computed his liability using his bank deposits as his gross proceeds. It then backed out or excluded various nontaxable items to determine the Taxpayer's taxable gross proceeds.
The Taxpayer does not contest the Department's use of his bank deposits in determining his gross receipts. He contends, however, that various receipts taxed by the Department were derived from nontaxable activities
Taxpayer's Position
The Taxpayer contends that the digital photographs were not subject to sales tax because they did not involve the sale of tangible personal property. He also argues that even if the digital photographs are deemed to be tangible property, he was primarily performing a nontaxable professional service, with the transfer of the tangible photographs only incidental to the service.
The Revenue Department's Position
Photography has never been held to be a learned profession for purposes of applying the sales tax law. The Taxpayer certainly uses skill and creativity in his business, but that skill and creativity goes into making the tangible photograph, which is sold at retail and sales tax is due thereon. Alabama's broad definition of tangible personal property, which the Alabama Supreme Court has construed to include electricity, is sufficiently broad to include digital goods transmitted by electrical impulses.
The full text may be accessed on the Alabama Department of Revenue website.
(Alabama DOR, Administrative Law Division, Docket NO. S. 05-1240, 11/17/2006)
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