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The IRS released a statement addressing the excise tax levied under § 4251 of the Internal Revenue Code. This section implements the tax on telecommunications services. There have recently been court cases that address this statute and may conflict with it. In Office Max Inc. v. United States, Office Max received a refund of their federal excise tax when they argued their phone service was not based on distance (except for local or international calls). The IRS release says that the excise tax will continue to be levied and nonpayment of the tax may result in interest and penalties. If a party believes they are entitled to a refund, they may file administrative claims with the IRS. (Internal Revenue Bulletin: 2004-35 August 30, 2004, Office Max, Inc. v. United States, 309 F. Supp. 2d 984 (N.D. Ohio 2004).


An Alabama trucking company believed their purchases of long haul trucks within the state did not make them liable for an assessed use tax by the Department of Revenue. In Alabama, use tax applies to all purchases of property, no matter where the property is purchased, as long as it is subsequently used, stored, or consumed in Alabama. The Department also concluded that the Alabama truck dealers which sold the trucks tax-free to the company were doing so improperly, as the "drive-out" exemption they were utilizing is available only to non-residents. A "drive-out" exemption applies when a purchaser can certify, at the time of purchase from the dealer, that the vehicle will be registered or titled outside of Alabama and will be removed for first use outside of Alabama within 72 hours. (Whatley Contract Carriers, LLC v. State of Alabama Department of Revenue, Docket No. U. 03-372, Decided March 23, 2004)


This is possible when trucking companies use using trucks in the state to fulfill client contracts even if the taxpayer was exempt from paying sales tax on their initial purchase of these same trucks. Certain trucking companies were taking advantage of a 'sales tax drive-out' exemption. However, the trucking companies would eventually use these trucks in the state of Alabama to fulfill client contracts. It was found that these trucking companies were not paying sales or use tax to any state for the trucks that they had purchased. Since nexus had clearly been established and Alabama imposes a use tax on the use of tangible personal property in the state, the trucking companies were found to be liable. (Whatley Contract Carriers, LLC v. State of Alabama Department of Revenue, March 23, 2004.)


In Alabama, a retailer selling highway construction supplies and devices tax-free to contractors doing contract work for the Alabama Department of Transportation was found liable for sales tax. The items sold included permanent and temporary signs, barrels and cones, flashing lights, safety vests, Gatorade, and batteries. The taxpayer believed that all items sold would be "incorporated into realty" thus making them nontaxable. However, the auditor explained that items used in a temporary capacity must be treated differently than those items sold to be permanently attached to realty. In Alabama, it is the taxpayer's "affirmative duty to investigate and determine if each of the items were intended to be incorporated into realty, and thus exempt." The taxpayer also made some cash sales to "government employees who were buying for the federal government". Unfortunately, the taxpayer had no record of these sales, thus making them undocumented cash sales subject to tax. (Safety Guide of Alabama, LLC v. State of Alabama Department of Revenue, Docket No. S. 03-412, February 3, 2004)


Under current Alabama law interpretations, two companies can be owned by the same parent company and be treated as two separate companies for sales and use tax collection responsibilities. One company having nexus in Alabama does not require that another company owned by the same parent company automatically have nexus within the state. If the two companies truly operate independently of each other, each company will be evaluated separately to determine if they have nexus in Alabama. (Revenue Ruling No. 03-001, August 4, 2003.)



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