Beginning June 30 and running through August 30, the Alabama Department of Revenue (ADOR) is offering many taxpayers an opportunity to come forward voluntarily and pay a litany of delinquent state and state-administered local taxes for only a 3-year or a 36-month (as applicable) look-back period, which would begin January 1, 2012 and extend through December 31, 2014. Readers will immediately note there is a gap period, i.e., those periods after December 31, 2014 through June 30. According to our sources in the ADOR, they would expect taxpayers and their advisers to use the ADOR’s standard voluntary compliance program in tandem to bring their tax filings up to date.
There are several incentives under this special amnesty program, including not only a waiver of all civil and criminal penalties associated with eligible taxes, but also a waiver of half the applicable interest, which is relatively rare. For the gap period, however, only penalties would be waived although the interest liability would be minimal because the state’s interest rate is tied to the IRS floating rate, which has ranged from 3% to 4% per annum during the gap period.
Similar to the ADOR’s voluntary compliance program, however, the taxpayer must not have been contacted by the ADOR within the past 5 years, including having been scheduled for an audit. Additionally, the taxpayer must not have another outstanding debt with the ADOR and must not have entered into a voluntary disclosure agreement with the ADOR with respect to the same tax and the look-back period.
There are other limitations to observe as well. For example, there is no installment payment option; tax and (partial) interest payments are due within 90 days of ADOR approval. And the 3-year limitation doesn’t apply to trust fund taxes such as income tax withholding, sales and certain excise taxes that were collected from customers but not remitted. Those taxes would also be due to the ADOR even if they relate to earlier periods.
Fortunately, almost all taxes administered by the ADOR are eligible for the program. Motor fuel excise taxes and ad valorem property taxes are the major exceptions. The taxes that will likely be the subject of most amnesty applications include corporate and individual income tax, business privilege tax, excise (except for motor fuel excise) taxes, state and ADOR-administered sales, sellers’ use, and consumer’s use taxes, along with financial institution excise taxes. Note, however, that filing the amnesty application will disclose the identity of the taxpayer, unlike the normal two-step procedure that we frequently employ with the ADOR’s voluntary compliance program. Also, it would be prudent for the taxpayer (or more appropriately, its tax adviser) to approach the self-administered cities and counties, on a no-names basis, simultaneously, if the taxpayer also owes similar taxes to these local governments. Officials at the ADOR stated that they will not automatically notify self-administered cities and counties that a taxpayer has filed an amnesty application, but the ADOR said it will respond to specific requests for information filed by local governments.
The ADOR published a notice on June 30 and established a very helpful website, www.alabamataxamnesty.com, which should be reviewed prior to filing any amnesty or voluntary compliance program applications. Also, feel free to contact any of the Alabama members of the firm’s SALT Practice Team.
Speaking of Voluntary Compliance...
As many readers are aware, the ADOR is in the forefront of challenging the U.S. Supreme Court’s landmark decision, Quill Corporation v. North Dakota, that requires an out-of-state catalog, internet or service vendor to have a facility or other physical presence in the taxing state before the vendor can be required to collect that state’s sales or seller’s use taxes from its customers/clients. A challenge to the ADOR’s so-called “economic nexus” regulation and statute was filed on June 9 by Newegg Inc., an on-line computer software company, with the Alabama Tax Tribunal. Newegg is also one of four on-line retailers that are in court with the state of South Dakota to determine whether that state can require out-of-state retailers to collect and remit the state sales tax under the state’s recently-enacted economic nexus statute.
Last year, in anticipation of issuing its controversial economic nexus regulation, the ADOR successfully lobbied the Alabama Legislature to establish a special voluntary compliance program for out-of-state vendors called the Simplified Sellers Use Tax Remittance Program. Although the guidelines of the program are somewhat broad, and applicants must prove a negative, i.e., that they don’t presently have physical presence nexus with the state, ADOR officials report that at least 50 companies have voluntarily registered to begin collecting sellers’ use tax at a flat 8% rate.
The ADOR recently announced that Amazon.com has registered to begin collecting seller’s use tax beginning November 1, and we understand that Overstock.com has also registered. Deputy Commissioner of Revenue Joe W. Garrett, Jr. was quoted in Bloomberg BNA’s Daily Tax Report as calling Amazon.com’s decision to voluntarily register a major feat for the State, and for local taxing authorities as well since the locals share in half the remittance. It is commonly understood that the seller’s use tax presently not being collected and remitted by Amazon.com alone represents at least half of the entire seller’s use tax that goes uncollected because of internet vendors’ lack of physical presence nexus with Alabama. That will mean millions of new dollars for state and local government coffers—but a bit more expensive Christmas for some.
Proposed Amendments to Special Income Tax Apportionment Rules
The ADOR finalized numerous changes to its apportionment rules for corporate income taxpayers, with the stated intention of adopting “recommended amendments to the [Multistate Tax Commission (“MTC”)] Rules approved by the MTC Executive Committee.” Ala. Admin. Code r. 810-27-1 et seq., effective June 25, 2016. However, the ADOR has recently proposed a few additional changes to the Section 18 so-called “special” apportionment rules (copies of the proposed rules are available here). One proposed change, requested by the Council On State Taxation (COST) and our firm, was to clarify that taxpayers may “file a valid refund petition when seeking an alternative allocation or apportionment method for a tax year with less than 91 days left in the statute of limitations period for refund.” This clarification ensures that the initial review process by the ADOR’s Secretary of a taxpayer’s request for alternative apportionment won’t shorten the time period in which the taxpayer may petition for a refund based on that request.
The stated purpose for the other changes to the Section 18 rule was to “move special [industry] rules for allocation and apportionment into separate rules in order to make the information more readily available to taxpayers.” Under the proposed rule, the seven special industry rules – construction, railroads, airlines; trucking, TV and radio broadcasting, publishing, and telecommunications and ancillary services – will now each be separate rules under the Section 18 rule. Finally, the proposed Section 18 rule also provides that the special industry rules will be applied by the ADOR for purposes of applying Alabama’s factor presence nexus statute. A public hearing on the proposed rules is scheduled for August 10 at 2:30 p.m.