Opinion ID: 2744068
Heading Depth: 2
Heading Rank: 2

Heading: Alabama Sales Commission Act

Text: Ideacom next argues that the district court erred by holding that the Act applies to a commission on the sale of supplies to a contractor. Specifically, Ideacom asserts that the sale of a nurse call system to Griffin Electric for installation into a nursing home was simply a retail sale, and thus, did not fall under the provisions of the Act, which is limited to wholesale transactions. Alabama is one of 33 states that have enacted laws to protect commissions earned by sales representatives. See RMC & Assocs., Inc. v. Beasley, 958 So.2d 879, 882 (Ala. Civ. App. 2006). Section 8-24-3 of the Alabama Code is a penalty provision dealing with “Sales Representative’s Commission Contracts.” Ala. Code § 8-24-3. As relevant to this appeal: The [Act] requires that commissions ‘due at the time of termination’ be paid within 30 days, but it also requires that commissions yet to accrue be paid within 30 days of the date on which they become due. Clearly, the [Act] contemplates that a sales representative is to be paid commissions that accrue on accounts that, because of his or her efforts 8 Case: 14-11118 Date Filed: 10/21/2014 Page: 9 of 13 on behalf of the principal, continue to provide business to the principal following termination of the representative. Lindy Mfg. Co., 706 So.2d at 1174. The Act further provides that, if a principal fails to pay a sales representative’s commission when it is due, the principal “is liable to the sales representative in a civil action for three times the damages sustained by the sales representative plus reasonable attorney’s fees and court costs.” Ala. Code § 8-24-3. In order for Ideacom to meet the definition of a “principal” under the Act, the company was, inter alia, required to sell “to customers who purchase the product or products for resale.” Ala. Code § 8-24-1(2). Additionally, in order for Tangen to meet the definition of a “sales representative,” he needed to solicit “orders for the purchase at wholesale of the product . . . .” Id. § 8-24-1(3). The Alabama Court of Civil Appeals has defined the term “wholesale,” as applicable to the Act, as follows: “The plain and ordinary meaning of the word ‘wholesale’ . . . denotes the sale of a product for resale.” RMC & Assocs. Inc., 958 So.2d at 883 (citation omitted). The crux of Ideacom’s argument on appeal is that the Griffin Electric transaction did not constitute a sale at the wholesale level, and thus 9 Case: 14-11118 Date Filed: 10/21/2014 Page: 10 of 13 the district court erred by awarding Tangen treble damages plus attorney’s fees under the provisions of the Act.3 We agree. At trial, the district court relied on the following evidence to support its finding that the Griffin Electric sale fell within the scope of the Act: (1) the invoice for the sale indicated that the product was delivered to Mountain View Nursing Home (Mountain View), the end-user of the product; (2) Ideacom’s president testified that the system was installed at Mountain View; (3) on direct examination, Tangen described, without objection, that he sold the system to Griffin Electric, which in turn “resold” the item to Mountain View. But there is nothing in the record to show that Griffin Electric executed a resale of the nurse call system to Mountain View. See RMC & Assocs., Inc., 958 So.2d at 884 (noting that because the Act imposes treble damages and is thus penal in nature, it “must be strictly construed”). Rather, the sale invoice and testimony from Ideacom’s President simply illustrate that Griffin Electric purchased the nurse call system from Ideacom in order to install the equipment into a nursing home. In Alabama, the transfer of building materials into completed structures generally are not considered sales. See, e.g., Ala. Admin. Code r. 3 Ideacom’s revenue on the Griffin Electric sale amounted to $81,854.82. Based on a 2.5 percent rate, the district court calculated that Tangen was due a back-end commission of $2,046.37. Based on the treble-damages provision in § 8-24-3, the amount owed became $6,139.11. The district court ultimately reduced this award by a third to reflect that $2,046.37 of this amount already had been included in Tangen’s recovery for breach of contract. 10 Case: 14-11118 Date Filed: 10/21/2014 Page: 11 of 13 810-6-1-.27(1) (2013) (noting that “contractors and builders do not sell the building materials they use and that sales to them are taxable under sales and use tax laws”). Citing to provisions of the Alabama Tax Code, Ideacom argues that the sale of the nurse call system to Griffin Electric as part of the construction of a nursing home constitutes a retail sale of building supplies to a contractor. See Ala. Code § 40-23-1(a)(1) (“Sales of building materials to contractors, builders, or landowners for resale or use in the form of real estate are retail sales in whatever quantity sold.”). The record supports Ideacom’s position. At trial, Tangen testified that the Griffin Electric sale was for “a new construction project” of a nursing home. Tangen also introduced the Ideacom sales invoice, which listed the sale price as $81,000 and noted that Griffin Electric paid a ten percent retail tax on the transaction. The mere fact that Griffin Electric paid a retail tax on the nurse call system, however, did not automatically render the transaction a retail sale. Rather, the payment of the retail tax demonstrates that the transaction complied with the Tax Code. See Ala. Admin. Code r. 810-6-1- .27. In any event, Tangen failed to present any evidence to show that Griffin Electric “resold” the nurse call system to Mountain View. He simply opined, without supporting documentation, that Griffin Electric was “an 11 Case: 14-11118 Date Filed: 10/21/2014 Page: 12 of 13 electrical contractor and they sell products to hospitals and other buildings, other people.” The district court labeled the nurse call system at issue in the Griffin Electric sale as “medical equipment” without further comment. But the record evidence shows that the system is more akin to a building material. Tomberlin, an Ideacom employee, testified that the nurse call system included a patient station that was affixed to the wall, an emergency pull station installed in the restroom, and cabling infrastructure, which consisted of a head-end electrical closet, a communications closet, and cabling for all devices. See Ala. Admin. Code r. 810-6-1.28(1) (2013) (describing “building materials” as “all tangible personal property, including any device or appliance vised by builders, contractors, or landowners in making improvements, additions, alteration or repair to real property in such a way that such tangible personal property becomes identified with a part of realty.”). Based on this record, we conclude that the Griffin Electric sale constituted a single sale between Ideacom and Griffin Electric rather than a wholesale transaction subject to resale. See State v. Algernon Blair Indus. Contractors, Inc., 362 So.2d 248, 251 (Ala. Civ. App. 1978) (noting that a contractor under Alabama law is considered a “user or consumer”). As 12 Case: 14-11118 Date Filed: 10/21/2014 Page: 13 of 13 such, we reverse the district court’s order granting Tangen $4,092.74 under the Act and remand for entry of judgment in favor of Ideacom on this count.