After several months’ wait and efforts to deal with pesky tax and geographical issues involving the police jurisdictions that surround most Alabama municipalities, the Alabama Department of Revenue last Friday posted a very helpful online sales tax rate look-up database for retailers.
Because of the new ADOR local nexus regulation effective January 1, Rule 810-6-5-.04.02, retailers who deliver their goods are now instructed to collect and remit the sales tax levied by the destination city and county within the state. The predecessor to this controversial regulation was the subject of a number of court cases and ADOR Administrative Law Division appeals over the years, including Yelverton’s, Inc. v. Jefferson County. The 1997 landmark case affirmed that a retailer need not collect the destination city and county sales tax if the retailer didn't have physical presence nexus in those jurisdictions. And mere delivery of its goods and an occasional sales call didn't create nexus. Nor was the retailer generally obligated to collect the origin city and county sales tax, if title to the goods passed at the destination. That “nowhere tax” scenario greatly frustrated the local jurisdictions.
With the advent of the “ONE SPOT” filing system last year—allowing retailers to electronically file all their state and local sales, use, and rental tax returns and make one monthly composite payment—the new address look-up database provides a complementary tool for retailers who deliver their goods to determine the proper sales tax due to the destination localities.
Another needed change in the Alabama local sales and use tax system may be coming in the next legislative session. Many Alabama retailers point out the likelihood and headaches of multiple audits involving the same tax periods and taxes: one by the ADOR, another by one or more of the private auditing firms on behalf of their local government customers, and another by one or more of the larger cities and counties that administer their own sales and use tax levies. The authors expect there to be a push toward a unified audit procedure—which the ADOR, cities, and counties have been studying as part of the Streamlined Sales Tax Commission efforts—in anticipation of the long-awaited passage of the Marketplace Fairness Act or similar legislation. Many in the business community don’t see the need to wait any longer, regardless of whether the Marketplace Fairness Act or some variation eventually passes in Congress.
The authors commend the ADOR for their ongoing efforts to simplify sales and use tax collection obligations for retailers, and hope there will be some form of “hold harmless” legislation introduced next session to address situations where a tax rate on the agency’s database turns out to be incorrect, due, for example, to a city’s failure to notify the Department of a rate change.