The Alabama Department of Revenue (“ADOR”) is expected to issue a revised and much less controversial version of its proposed local nexus rule by July 25. The revised rule is expected to be narrower in scope than the previously proposed version and will essentially parallel the current interstate nexus rule, Ala. Admin. Code r. 810-6-2-.90.01, for sales and use taxes.
This revision comes after several industry groups and professional organizations filed comments and met with the ADOR expressing concern over the broad scope of and inherent ambiguities in the proposed rule. While many of the concerns of the commentators will likely be addressed in the revised rule, there nevertheless may be some other problem areas that remain. The ADOR expects to have its new local nexus rule finalized and effective on September 1, one month before the effective date of the landmark ONE SPOT e-filing legislation.
By way of background, in late April, the ADOR issued a proposed regulation regarding a seller’s obligation to collect and remit sales and use tax to Alabama counties and municipalities. Prop. Ala. Admin. Code r. 810-6-5-.04.02. Along with the newly proposed local nexus rule, the ADOR also proposed to repeal its longstanding local nexus regulation, Rule 810-6-3-.51, which Alabama courts and the Attorney General have often cited for the proposition that the mere delivery of goods into a local jurisdiction does not by itself establish nexus (a tax collection obligation) for local sales and use tax purposes. See, e.g., Yelverton’s Inc. v. Jefferson Co., 742 So. 2d 1216, 1221 (Ala. Civ. App. 1997), cert. quashed, 742 So. 2d 1224 (Ala. 1999); Diversified Sales, Inc. v. State Dep’t of Rev., Admin. Law Div., Dkt. No. S. 06-937 (Sept. 4, 2007); Opinion of the Attorney General No. 2001-165 (Apr. 26, 2001).
Under the ADOR’s interstate nexus rule, delivery into Alabama by an out-of-state seller creates nexus with Alabama only if the seller uses its own trucks for the delivery. Delivery by common carrier does not create nexus for out-of-state sellers. Because the local nexus rule will now parallel the interstate nexus rule, these same rules will now apply to local deliveries. Thus, a local retailer who uses its own trucks to make deliveries will have a collection obligation in the destination jurisdiction. This change is in direct contrast to the Yelverton’s case and Attorney General opinion cited above.
The current local nexus rule requires a seller to have a salesperson regularly soliciting sales in a local jurisdiction in order to create a collection obligation. Neither the first draft nor the revised proposed rule imposes any sort of de minimis threshold before a local sales or use tax collection obligation is triggered, and may cause the ADOR, as well as local governments—or their contract auditors—to take the position that any sales personnel entering a local jurisdiction on official business, no matter how briefly, would create local nexus. By paralleling the interstate nexus rule, however, the revised local nexus rule should at least mitigate the problematic language in the proposed rule.
Another problem that business and trade organizations had with the proposed rule was the lack of a ‘hold-harmless’ provision. Such a provision would provide relief to taxpayers who mistakenly relied on the ADOR’s website for sales and use tax rates that turn out to be incorrect. This parallels the Marketplace Fairness Act, which passed the U.S. Senate in May and is now awaiting a vote in the U.S. House of Representatives. That issue has not been addressed in the proposed rule and may require a statutory solution. Nevertheless, the authors commend the ADOR for being responsive to most of the comments of the business and professional community. Having a local nexus rule that parallels the ADOR’s interstate sales and use tax nexus rule will ease administrative burdens on both the ADOR and businesses—but there is work left to be done.
© July 2013. Bruce P. Ely/William T. Thistle, II/J. Sims Rhyne, III/Bradley Arant Boult Cummings LLP. All rights reserved. Note: the authors’ firm represented the taxpayer in Yelverton’s, Inc. v. Jefferson County and was involved in several other local nexus cases as well as in seeking the Attorney General Opinion mentioned above.