On Wednesday, August 19, Governor Bentley signed into law Act 2015-534 (formerly Senate Bill 24) (the “Act”), a controversial bill requiring all entities, other than governmental entities, that have been granted a general statutory exemption from the payment of Alabama sales, use or lodging taxes (“Applicable Nonprofits”) to apply to the Alabama Department of Revenue (“Revenue Department”) beginning in 2016 for an annual Certificate of Exemption (“COE”) in order to continue to be exempt from state and local sales, use and lodgings taxes (“State and Local Taxes”). Applicable Nonprofits that do not obtain a proper COE will be required to pay State and Local Taxes. The Act also authorizes the Revenue Department to assess State and Local Taxes against any Applicable Nonprofit found to be using a COE that is not “properly accounted for,” a phrase not defined in the Act.
Applicable Nonprofits that intentionally use a COE in violation of its purpose will not only be subject to the State and Local Taxes, but they may also be subject to a stiff penalty of not less than the greater of: (i) $2,000 or (ii) two times the amount of the State and Local Taxes due on the transaction. In addition to these penalties, an Applicable Nonprofit that engages in the “willful misuse” of a COE may also be barred from the use of any COE for up to two years.
In addition to the annual application for a COE, all Applicable Nonprofits may be required to file an annual informational return with the Revenue Department. Neither the content of this return nor the requirements for filing it is explained in the Act. Any Applicable Nonprofit that fails to comply with this reporting requirement could be barred from using a COE for up to six months for the first offense, for up to one year for the second offense, and until the Applicable Nonprofit is authorized to obtain a COE by a joint resolution of the Alabama legislature for the third offense.
The Act became effective upon its execution by Governor Bentley and is operative for all Applicable Nonprofits on January 1, 2016. The Act applies to all Applicable Nonprofits, including, without limitation, not-for-profit hospitals, schools and universities, United Way agencies, YMCA’s and YWCA’s, churches and church-sponsored organizations, not-for-profit museums, symphonies and ballets, and humane societies.
After the bill was signed, Governor Bentley issued an executive order directing the Revenue Commissioner to appoint an advisory council of up to ten representatives from the not-for-profit community to advise her in drafting the regulations to implement the Act.