This month, we continue our blog series with a contrast of a couple of Southern states – Alabama and Mississippi – specifically their treatment of technology items for sales tax purposes.

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Software as a Service (SaaS) in Alabama vs. SaaS in Mississippi

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

Cloud Computing Services are taxable in Alabama

Computer software is tangible personal property subject to sales, use, or rental tax, regardless of whether the transaction is affected by a transfer of title, possession, or a license to use or consume. Unless specifically stated otherwise, the licensing of computer software is considered a retail sale, not a rental, and is subject to sales or use tax regardless of its function or form of transmission to the purchaser or licensee. However, Alabama has not clearly confirmed the taxability of SaaS and the application of sales or use tax to SaaS transactions remains subject to interpretation. Continue to follow us for updates on future developments in this area.

SaaS is not taxable in Mississippi

It is exempt if the software is stored on a server located outside the state. However, if the service is located within the state, then Mississippi will consider SaaS as a taxable transaction.

Curious about other states’ SaaS taxability? Check out our interactive SaaS taxability Map

Software in Alabama vs. Software in Mississippi

Alabama does impose sales and use tax on prewritten computer software

Computer software is tangible personal property subject to sales, use, or rental tax, whether the transaction is affected by a transfer of title, possession, or a license to use or consume.

Prewritten computer software delivered electronically is subject to tax in Mississippi

The sale of custom computer software delivered electronically is subject to tax in Alabama

Computer software is tangible personal property subject to sales, use, or rental tax, whether the transaction is affected by a transfer of title, possession, or a license to use or consume. However, when separately stated, software programming is not subject to tax regardless of the manner or medium of transfer to the customer since the charge for software programming is a separately stated charge for professional services.

The sale of custom computer software delivered electronically is subject to tax in Mississippi

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Alabama, digital products are taxable

Sales of digital goods (i.e. downloaded music, ringtones, movies, books, etc.) are subject to sales tax in Alabama because they are considered sales of tangible personal property.

In Mississippi, digital products are also taxable

Mississippi imposes sales tax of the gross income of every person engaged within Mississippi in the business of selling, renting, or leasing specified digital products.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Alabama and Mississippi shake out.

Alabama had a sales tax holiday from February 21 to February 23rd (on Friday at 12:01 am of the last full weekend in February and ending at midnight of the following Sunday). Items that are on sale are severe weather generators and cords that are $1,000 or less and supplies that are $60 or less.

Mississippi has a sales tax holiday on back-to-school clothing, footwear or school supplies if the sales price of a single item is less than $100.

For more information on sales tax holidays, click here. (https://taxadmin.org/sales-tax-holidays/)

Economy

Alabama’s industrial outputs include iron and steel products (including cast-iron and steel pipe), paper, lumber, and wood products, mining (mostly coal), plastic products, cars and trucks, and apparel. In addition, the state also produces aerospace and electronic products, mostly in the Huntsville area, the location of NASA’s George C. Marshall Space Flight Center and the U.S. Army Material Command.

A great deal of Alabama’s growth since the 1990s has been due to the state’s expanding automotive manufacturing industry. The state is home to Honda Manufacturing of Alabama, Hyundai Motor Manufacturing Alabama, Mercedes-Benz U.S. International, and Toyota Motor Manufacturing Alabama, as well as their suppliers. Since 1993, the automobile industry has generated more than 67,800 new jobs in the state. Alabama currently ranks 4th in the nation for vehicle exports.

Alabama’s agricultural outputs include poultry and eggs, cattle, fish, plant nursery items, peanuts, cotton, grains such as corn and sorghum, vegetables, milk, soybeans and peaches. Although it is known as the cotton state, Alabama ranks between eighth and tenth in the nation in cotton production with Texas, Georgia and Mississippi comprising the top three.

The legislature’s 1990 decision to legalize gambling along the Mississippi River and the Gulf Coast has led to increased revenue and economic gains for the state. Gambling towns in Mississippi have attracted increased tourism: they include the Gulf Coast resort town of Bay St. Louis, Gulfport and Biloxi, and the Mississippi River towns of Tunica (the third largest gaming area in the U.S.), Greenville, Vicksburg and Natchez.

The state has some major automotive factories, such as the Toyota Mississippi Plant in Blue Springs and a Nissan Automotive Plant in Canton. The latter produces the Nissan Titan.

The state’s most valuable crops are cotton and soybeans. Production of cotton generates about 13% of the state’s total agricultural receipts, ranking Mississippi as the 3rd highest cotton producing state. Other significant crops grown in the state include grain, rice and sweet potatoes, hay and peanuts.

Mississippi is also a leading shrimp producer. The state is also known for its saltwater products that include menhaden, oysters and red snapper. Although severely impacted by the “Deep Water Horizon” oil spill more than a decade ago, the industry has bounced back very well. Freshwater catches include buffalo fish, carp and catfish.

Alabama Fun Facts:

  • Helen Keller, born on June 27, 1880, in Tuscumbia Alabama, was the first deaf person to earn a college degree. The film, “The Miracle Worker,” was produced in 1962 depicting the story of the remarkable tutor Anne Sullivan and Helen Keller.
  • The arrest of Rosa Parks in 1955, when she refused to give up her bus seat to a white man in Montgomery became a key event in the civil rights movement. She is called “the mother of the civil rights movement.”
  • On January 11, 1861, Alabama seceded from the union. The delegates from six states met in Montgomery and formed the Confederate States of America. Montgomery was chosen as the capital. Because of this, Montgomery is known as the “Cradle of the Confederacy.” The Confederate flag was designed and first flown in Alabama in 1861.
  • Saturn V, the rocket used by NASA to send people to the moon, was developed at NASA’s Marshall Space Flight Center in Huntsville, Alabama. It was launched in 1967. The rocket was as tall as a 36-story-tall building and weighed as much as 400 elephants.

Mississippi Fun Facts:

  • Root Beer was invented in Biloxi in 1898 by Edward Adolf Barq, the namesake of Barq’s Root Beer. The Barq’s Root Beer company is now owned by Coca-Cola and is based in Atlanta.
  • Elvis Presley was born in Tupelo on January 8, 1935.
  • Jackson, the capital of Mississippi, is named after General Andrew Jackson in honor of his victory at the Battle of New Orleans of 1815.
  • The state has about 27 tornadoes annually.
  • The 26-mile section of the Mississippi Gulf Coast that stretches from Biloxi to Henderson Point is the world’s largest man-made beach.
  • Legendary puppeteer Jim Hensen was born in Greenville and spent his childhood in Leland, Mississippi. The town still honors Henson’s Mississippi roots with the birthplace of the Kermit the Frog Museum and the Rainbow Connection Bridge.
  • Pine Sol, the cleaning and deodorizing product, was developed in 1929 by chemist Harry A. Cole, who lived in a pine forest near Jackson, MS.
  • Mark Twain had a literary love affair with the Mississippi River and wrote about it often. One of his most famous works centered around the river and places along its path is The Adventures of Huckleberry Finn.

We invite you to further explore Alabama and Mississippi in these earlier blogs we crafted over the years. LINK Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Alabama, Mississippi, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

https://milesconsultinggroup.com/blog/2020/01/08/focus-on-alabama-2/

https://milesconsultinggroup.com/blog/2020/11/10/focus-on-mississippi-2/

Curious about SAAS laws in other states check out our SAAS map