EX PARTE RUSSELL COUNTY COMMUNITY HOSPITAL, LLC, d/b/a Jack Hughston Memorial Hospital In re: Russell County Community Hospital, LLC, d/b/a Jack Hughston Memorial Hospital
State Department of Revenue.
PETITION FOR WRIT OF CERTIORARI TO THE COURT OF CIVIL APPEALS
Russell Circuit Court, CV-16-900160; Court of Civil Appeals,
Richard L. Chancey of The Law Firm of Chancey & Cooley,
LLC, Phenix City, for petitioner.
E. Avery III and Margaret Johnson McNeill , asst. counsel,
Alabama Department of Revenue, for respondent.
Court granted a petition for a writ of certiorari seeking
review of the Alabama Court of Civil Appeals' decision
affirming a judgment of the Russell Circuit Court ("the
trial court"), which ruled that a series of transactions
involving the sale of computer software and accompanying
equipment was subject to sales tax. See Russell Cty.
Cmty. Hosp., LLC v. State Dep't of Revenue, 291
So.3d 45 (Ala. Civ. App. 2018).
We affirm the Court of Civil Appeals' judgment.
February 2012 and October 2014, Medhost of Tennessee, Inc.
("Medhost"), sold Russell County Community
Hospital, LLC, d/b/a Jack Hughston Memorial Hospital
("the taxpayer"), computer software and
accompanying equipment, which Medhost contracted to install
in a hospital operated by the taxpayer. The software and
equipment assists the taxpayer in operating various aspects
of its hospital. Medhost collected a little less than $18,000
in sales tax in connection with the transactions, which it
remitted to the Alabama Department of Revenue ("the
the taxpayer petitioned the Department for a refund of the
sales tax it had paid on the transactions with Medhost. The
Department denied that request, and the taxpayer appealed to
the Alabama Tax Tribunal ("the tax tribunal"),
which reversed the Department's decision and directed the
Department to grant the taxpayer's request for a refund.
The Department then filed an action in the trial court
requesting de novo review of the tax tribunal's decision.
After a hearing, during which testimony was presented ore
tenus, the trial court overturned the tax tribunal's
decision and affirmed the Department's denial of the
taxpayer's refund petition. The taxpayer appealed to
the Court of Civil Appeals, which affirmed the trial
court's judgment. We granted the taxpayer's petition
for a writ of certiorari.
Alabama, sales tax is levied on the sale of tangible personal
property. State Dep't of Revenue v. Wells Fargo Fin.
Acceptance Alabama, Inc., 19 So.3d 892, 894 (Ala. Civ.
App. 2008) (citing § 40-23-2(1), Ala. Code 1975). This
Court has defined "tangible personal property" as
"`something that can be seen, felt, handled, sold
commercially ... and has physical substance.'"
State v. Advertiser Co., 257 Ala. 423, 429, 59 So.2d
576, 580 (1952) (quoting a trial court's order with
approval). See also Black's Law Dictionary 1412 (10th ed.
2014) (defining "tangible personal property" as
"[c]orporeal personal property of any kind; personal
property that can be seen, weighed, measured, felt, touched,
or in any other way perceived by the senses").
Court has decided two appeals involving taxation in
connection with the sale of computer software. The first,
decided in 1977, was State v. Central Computer Services,
Inc., 349 So.2d 1160 (Ala. 1977). The issue in that case
was stated broadly as "whether computer `software'
constitutes tangible personal property for purposes of the
state use tax." 349 So.2d at 1161. The software in
Central Computer Services had been conveyed to the software
user via magnetic tapes or punched cards that were "used
to program [the user's] computer which provide[d] data
processing services for banks." Id. Upon
receiving the tapes or cards, the user would transfer the
"information" contained thereon to the user's
own magnetic discs and would then return or discard the tapes
and cards. This Court held that the software user had not
purchased tangible property. Rather, "the essence of
[the] transaction was the purchase of nontaxable intangible
information." 349 So.2d at 1162. The Court determined
that the physical media that had been used to transfer that
"information" was incidental to the sale of the
information. In support of that reasoning, the Court noted
that "this information can also be telephoned to the
computer or brought into Alabama in the mind of an employee
of [the software seller]." Id.
20 years later, in Wal-Mart Stores, Inc. v. City of
Mobile, 696 So.2d 290 (Ala. 1996), this Court considered
the type of software that was being sold in Wal-Mart retail
discount stores in the mid 1990s, although the Court broadly
stated the issue as "whether computer software is
intangible personal property." 696 So.2d at 290. The
Court acknowledged that the reasoning underlying Central
Computer Services was that the purchaser of software was
really purchasing intangible information. The Court noted,
however, that, since that case was decided in 1977,
"there ha[d] been a shift in the view of many
courts." 696 So.2d at 291.
"One of the changes that has occurred in this state and
elsewhere, which was perhaps not reasonably to be anticipated
in 1977, is the proliferation of `canned' computer
software, such as is sold by stores like Wal-Mart. As a
practical matter, the marketing of such `canned' software
presumes that the information sought will be conveyed by way
of a tangible medium. In this sense, the merchandiser is
making a sale of tangible property, like the sale of a
696 So.2d at 291 (emphasis omitted). The Court thus relied on
an assumption that the "information" making up
canned software would necessarily be conveyed by way of a
tangible medium. The Court, however, appeared to go further
and to suggest that the "information" itself is
tangible once it is recorded somewhere:
"`The software itself, i.e., the physical copy, is not
merely a right or an idea to be comprehended by the
understanding. The purchaser of the computer software neither
desires nor receives mere knowledge, but rather receives a
certain arrangement of matter that will make his or her
computer perform a desired function. This arrangement of
matter, physically recorded on some tangible medium,
constitutes a corporeal body.'"
696 So.2d at 291 (quoting South Cent. Bell Tel. Co. v.
Barthelemy, 643 So.2d 1240, 1246 (La. 1994) (emphasis
taxpayer argues that this case, unlike Wal-Mart, does not
involve canned software. Rather, the taxpayer asserts that it
purchased nontaxable services in the form of "custom
software programming." The taxpayer points to an
administrative regulation promulgated by the Department,
which provides, in part, that
"[c]ustom software programming is not subject to tax
regardless of the manner or medium of transfer to the
customer since the charge for the custom software programming
is a charge for professional services and the manner or
medium of transfer is ...