The Alabama Department of Revenue (ADOR) quietly filed its Answer in the ongoing challenge by Newegg, Inc. to the so-called economic nexus threshold set forth in ADOR Rule 810-6-2.90.03 for certain out-of-state retailers. In its Answer, the ADOR addresses Newegg’s argument that the U.S. Supreme Court’s 1992 holding in Quill Corp. v. North Dakota exempts it from having to collect and remit use tax because it lacks physical presence within the state. The ADOR mounted a frontal assault by asking the Alabama Tax Tribunal to adopt a new “substantial nexus” framework, as set forth in Complete Auto, asserting that an expansive “economic presence” rule is more appropriate for contemporary society. According to the ADOR, this “economic presence” rule addresses the reality that domestic brick-and-mortar stores are placed at a competitive disadvantage by having to collect sales tax on purchases when out-of-state online retailers, such as Newegg, may avoid collecting use tax altogether for purchases made in-state.

The ADOR further argued that its economic nexus rule, when combined with the list of nexus-creating activities specified in Ala. Code §40-23-68, causes Newegg to have “substantial nexus.” The ADOR asserts that the California-based catalog and online retailer not only sold more than $250,000 of tangible personal property within the state during 2015, which brings its activities within the purview of Rule 810-6-2.90.03, but it also “maintain[ed] other contact[s] with [Alabama] that would allow [Alabama] to require the seller to collect and remit the tax due under the provisions of the Constitution and laws of the United States.” Specifically, Newegg allegedly “distribut[es] catalogs or other advertising matter, and by reason thereof receives and accepts orders from residents, within the State of Alabama” (Ala. Code § 40-23-68(b)(10)).

In response to the ADOR’s Answer, Chief Tribunal Judge Bill Thompson entered a preliminary order authorizing pre-hearing discovery to commence, but he did not set a hearing date.