Last Friday the Alabama Supreme Court denied the ADOR’s petition for writ of certiorari in the case of State Dep’t of Revenue v. Omni Studio, L.L.C. The denial by the Supreme Court follows a pro-taxpayer ruling in the Alabama Court of Civil Appeals. Should the ADOR not pursue a petition for writ of certiorari from the U.S. Supreme Court (the grant of which would be highly unlikely), the ruling marks the end to longstanding litigation sparked by a challenge by the Birmingham-based commercial photography studio to the ADOR’s assessment for failure to collect and remit sales taxes on certain of its charges to in-state customers.
The ADOR had alleged that Omni Studio, which provided photography and related services primarily to advertising and marketing firms in the state, should have charged its customers sales tax for those transactions between the years 2007 and 2013. Omni Studio challenged the ADOR’s assessment primarily on the basis that the act of taking and providing photographs (tangible personal property) to clients was merely incidental to providing non-taxable creative services, and was therefore not subject to sales tax.
Omni Studio appealed the ADOR’s final assessment directly to Jefferson County Circuit Court, which granted the taxpayer’s motion for summary judgment. From there, the ADOR appealed to the Alabama Court of Civil Appeals, which upheld the lower court’s determination, relying principally on two previous appellate court decisions, State v. Harrison and State v. Kennington, both of which dealt with the taxability of visual materials provided in conjunction with non-taxable creative services. How the ADOR will react to this ruling in terms of several other pending challenges and future audits is also unknown.