# Alabama SaaS Sales Tax: Is It Taxable? Canonical: https://trykintsugi.com/blog/alabama-saas-sales-tax Published: 2025-01-20 Alabama taxes software however it is delivered but has no rule on remotely accessed SaaS. What the rule covers, the $250,000 nexus threshold, and SSUT. Alabama is one of the harder states to answer the "is SaaS taxable?" question for. Its rule on computer software is broad: software is tangible personal property and is taxable whether it is sold on a disk, downloaded, or licensed. But Alabama has no statute, rule, or published guidance that directly addresses software as a service, where the customer uses software hosted by the provider and never receives a copy. Until the Alabama Department of Revenue (ALDOR) addresses it, the taxability of remotely accessed SaaS in Alabama is unsettled. This article is educational information, not tax advice. Because the position is unclear, SaaS companies with Alabama customers should review their own facts with a tax advisor or ask ALDOR for a ruling. ## What Alabama's software rule says Alabama's software rule is [Ala. Admin. Code r. 810-6-1-.37](https://www.revenue.alabama.gov/wp-content/uploads/2021/12/810-6-1-.37-.pdf), last amended effective January 13, 2020. Its key points: - **Software is tangible personal property.** The retail sale or licensure of computer software is subject to sales, use, or rental tax, whether the transaction transfers title, possession, or a license to use it. - **Delivery method does not matter.** Unless stated otherwise, licensing software is treated as a retail sale subject to sales or use tax "regardless of its function or form of transmission to the purchaser or licensee." A download is taxed like a boxed copy. - **Custom programming is a service.** Charges for developing or modifying software for a specific customer are not taxable when they are separately stated on the invoice, however the result is delivered. The provider owes tax on any tangible medium used to deliver it. - **Maintenance contracts depend on the terms.** If a maintenance contract is required as a condition of the software sale, the whole charge is taxable. If it is optional, the portion covering upgrades and new manuals is taxable, while separately stated support, bug fixes, and training are not. The current rule lists the Alabama Supreme Court's 2019 decision in *Ex parte Russell County Community Hospital* among its authorities. ## Where SaaS fits, and why it is unclear The rule is written around software that is sold or licensed to a customer. Pure SaaS works differently: the provider keeps the software on its own servers and the customer accesses it over the internet. The rule does not say whether that remote access is a "license" of software. There are two ways to read it: - **Taxable reading:** a SaaS subscription grants the customer a right to use software, which is a license, and the rule taxes licenses "regardless of form of transmission." - **Nontaxable reading:** no software is transmitted to the customer at all, so there is no sale or licensure of tangible personal property; the customer is buying a service, and Alabama's sales tax does not generally reach services. ALDOR has not issued guidance choosing between them. ### Practical options - **Request a revenue ruling.** ALDOR issues written rulings on specific facts, which give the most certainty. - **Look at what the customer actually receives.** If customers download a client, desktop app, or plugin as part of the subscription, that part looks like licensed software under the rule and is more likely taxable. - **Separate charges.** Separately stating custom development, implementation, training, and optional support makes it easier to show which parts are services. - **Document the position.** Whichever approach you take, record the reasoning and keep it consistent across invoices and returns. ## Economic nexus and the SSUT program Remote sellers have an Alabama collection obligation once their retail sales delivered into Alabama exceeded **$250,000 in the previous calendar year**, according to [ALDOR](https://www.revenue.alabama.gov/faqs/are-all-remote-sellers-required-to-register-in-alabama/). The threshold counts all retail sales made directly by the seller, taxable or not. Remote sellers with no physical presence in Alabama can join the [Simplified Sellers Use Tax (SSUT) program](https://www.revenue.alabama.gov/sales-use/simplified-sellers-use-tax-ssut/). Participants collect a flat 8% on all Alabama sales regardless of the delivery location, and collecting it relieves the seller and buyer of any other state or local sales or use tax on the transaction. Sellers below the threshold may also join voluntarily. Outside SSUT, sellers collect the 4% state rate plus the applicable county and city rates, which Alabama localities set and in some cases administer themselves. ## Registration and filing Register through [My Alabama Taxes](https://myalabamataxes.alabama.gov/), ALDOR's online portal, which is also used to file returns and pay. State sales and use tax returns are generally due by the 20th day of the month following the reporting period. Keep product classifications, exemption certificates, transaction records, and filed returns organized in case of audit. ## FAQs ### Is SaaS taxable in Alabama? It is unclear. Alabama taxes software sold or licensed in any form, including downloads, but has no rule or guidance on remotely accessed software that the customer never receives. SaaS providers should get advice on their specific offering or request an ALDOR ruling. ### Is downloaded software taxable in Alabama? Yes. Under rule 810-6-1-.37, licensed software is taxable regardless of how it is transmitted, so downloads are taxed the same as physical copies. ### Is custom software taxable in Alabama? Separately stated charges for custom programming are not taxable. Software licensed to the customer as part of the project is. ### What is the Alabama economic nexus threshold? $250,000 in retail sales delivered into Alabama during the previous calendar year. ## How Kintsugi helps Kintsugi monitors economic nexus in Alabama and every other state, lets SaaS teams set product-level taxability as their position evolves, calculates tax, and files returns. --- **Related resource:** For current rates, nexus thresholds, filing deadlines, and FAQs, see Kintsugi's [Alabama Sales Tax Guide](/sales-tax-guides/usa/alabama).