Alabama to Start Enforcing Economic Nexus Rules For Out of State Sellers on October 1, 2018

The announcements keep coming from the states following the Wayfair decision. Not surprisingly, the Alabama Department of Revenue has announced that it will begin enforcing its economic nexus rule for collection of sales taxes on October 1. (ADOR Announces Sales and Use Tax Guidance for Online Sellers, Alabama Department of Revenue Website, July 3, 2018)

Alabama’s economic nexus rule is a bit different from South Dakota’s, being based solely on total revenue from sales into Alabama and not having a transaction-based trigger as well. The Alabama sales level is $250,000 annually to triggera tax collection requirement.  As well, Alabama is not a full member of the Streamlined Sales and Use Tax Agreement (SSUTA).  Instead, Alabama has implemented its own Simplified Seller’s Use Tax Program (SSUT).

While the gross sales number shouldn’t pose a problem (anyone meeting Alabama’s gross sales limit would trigger the filing requirement in South Dakota), the fact the state is not a full member of SSUTA.

Information on Alabama’s Simplified Sellers Use Tax Program can be found in the SSUT application on the Alabama Department of Revenue website.  Under the SSUT program the seller collects a flat 8% on sales to Alabama customers.  That rate, per the Avalara state tax calculator site for Alabama, is lower than the rates in major cities in Alabama but higher than the rates in various smaller locales in the state.[1]

As the website outlining the program notes:

The flat tax applies to all sales regardless of the locality shipped to in Alabama. The collection and remittance of the simplified sellers use tax relieves the eligible seller and the purchaser from any additional state and local sales or use tax on the transaction. Purchasers from whom the tax has been collected may apply for a refund or take a credit on their consumer’s use tax return if the eight percent (8%) collected by the eligible seller exceeds the purchaser’s combined state and local tax rate. The local portion of the simplified sellers use tax will be distributed to cities and counties of the State of Alabama based on population.[2]

An eligible entity must apply to be accepted in the program before the entity can use the 8% rate and collect tax at that rate.  Presumably an entity that makes sales before filing for entry into the program would be liable for the full state and local rate amounts if the entity has sales in excess of Alabama’s economic nexus limit.

The rule had been on the books since January 1, 2016, but the state announced it will only prospectively being enforcing this rule on October 1, 2018. The ADOR had been tied up in state court attempting to enforce the rule earlier.

The announcement makes Alabama one of the first states that does not have a statute that is virtually identical to South Dakota’s to announce its intent to move forward with collection.  It will be interesting to see if the courts accept Alabama’s “do it yourself” simplified system as the equivalent of the SSUTA, or if the courts decide that having multiple “simplified” procedures for each state would itself be an impermissible burden on interstate commerce.

The July 2 release also describes Alabama’s recently enacted marketplace sales tax collection rule as well.  That program is briefly described below:

In addition to the collection requirements for remote sellers, Ala. Act 2018-539 requires marketplace facilitators with Alabama marketplace sales in excess of $250,000 to collect tax on sales made by or on behalf of its third-party sellers or to comply with reporting and customer notification requirements. The Act mandates compliance with reporting or remitting requirements on or before January 1, 2019. However, marketplace facilitators desiring to facilitate the collection and remittance obligations of their marketplace sellers that go into effect on October 1 may begin collecting and remitting taxes on marketplace sales through the SSUT program upon completion of the application and registration process. Remote sellers who can demonstrate that a marketplace facilitator is collecting and remitting SSUT or sales tax on their Alabama sales will be relieved of the requirements imposed by rule 810-6-2-90.03.[3]