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Alabama has held that freight and transportation charges incurred by a taxpayer in shipping its products to customers that were ultimately paid for by the customers are not subject to Alabama sales tax. The taxpayer outsourced most customer orders to vendors and suppliersusing a drop shipment fulfillment method. In the transactions in question, the goods were delivered by common carrier, and the taxpayer was invoiced for the freight charges by its suppliers. The taxpayer passed those charges on to its customers for reimbursement using separately stated line items on the customer invoices. The Alabama Tax Tribunal looked to the definition of "sales" for state sales tax purposes and concluded that the Alabama Legislature intended to exclude transportation charges from taxable gross proceeds if the charges were separately stated to the purchaser and the purchaser ultimately bore or incurred the financial burden for the charges. The Tribunal stated that it was undisputed that the taxpayer separately billed the transportation charges to its customers. While the taxpayer's suppliers directly paid the freight charges to the common carriers, the taxpayer's customers indirectly paid the charges because the suppliers billed the taxpayer for the charges, and the taxpayer passed those charges onto its customers. Since the taxpayer’s customers reimbursed the taxpayer, the customers ultimately bore the economic burden for the deliveries. The Tribunal concluded that the phrase "paid by the purchaser" in the Alabama tax code should be construed to include both instances when the purchaser directly pays the transportation charges and instances when the purchaser indirectly pays for the deliveries. Since the purchaser reimbursed the seller for the transportation charges, and thus bore the ultimate economic burden for the charges, the charges were in substance "paid by the purchaser" within the purview and intent of the Alabama tax code.(Mike Kilgo & Associates, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 14-1060, January 13, 2016)

(05/11/2016)

On February 11, 2016, the U.S. Senate approved a permanent extension of the Internet Tax Freedom Act (ITFA) that is included in H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill also establishes an end date of June 30, 2020 for the seven states that currently impose a tax on internet access: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. President Obama is expected to sign the permanent extension of the ITFA into law. The House of Representatives had previously passed H.R. 235, the Permanent Internet Tax Freedom Act, on December 15, 2015.  For our previous news item on this topic, visit Internet Tax Freedom Act Extended Through October 1, 2016.

 

UPDATE: On February 24, 2016, President Barack Obama signed into law the permanent extension of the Internet Tax Freedom Act.

 

(Trade Facilitation and Trade Enforcement Act of 2015)

(02/23/2016)

On December 18, 2015, President Barack Obama signed H.R. 2029 – Consolidated Appropriations Act, 2016. The Act extends the Internet Tax Freedom Act (ITFA) through October 1, 2016. Prior provisions that grandfather taxes that existed prior to October 1, 1998 are also extended through October 1, 2016. For our previous news item on this topic, see Internet Tax Freedom Act Extended Until December 11, 2015. (H.R. 2029 – Consolidated Appropriations Act, 2016)

(01/18/2016)

Effective January 1, 2016, groups and organizations (other than governmental entities) which have a statutory exemption from sales, use and lodgings taxes will be required to obtain an annual certificate of exemption (Form STE-1) from the Alabama Department of Revenue. Certificates of exemption will be valid for one year from the date of issuance and must be renewed annually each subsequent year before the end of the month in which the certificate expires. Any company or individual who fails to obtain a certificate prior to January 1, 2016, or who fails to renew a certificate prior to its expiration, will no longer be allowed to make tax-exempt purchases or rent tax-exempt accommodations until a certificate of exemption is obtained or renewed. Vendors of these organizations must obtain the new certificates annually in order to make tax exempt sales. (Notice, Alabama Department of Revenue, October 27, 2015)

(12/09/2015)

Alabama has enacted a new economic nexus rule applying to out-of-state sellers making sales into Alabama. The rule applies to all transactions occurring on or after January 1, 2016. The rule adds another condition to the activities for which an out of state seller will be required to collect tax.  The rule does not set a strict economic presence test but rather adds an economic sales threshold to the test that will apply if the out of state seller also conducts other activities in the state that establish nexus.  An out of state seller is required to collect Alabama tax when:

 

  • the seller’s retail sales of tangible personal property sold into the state exceed $250,000 per year based on the previous calendar year’s sales; and
  • the seller conducts one or more of the activities described in §40-23-68, Code of Alabama:

o   Maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business;

o   Qualifies to do business or registers with the state to collect the tax levied by this chapter;

o   Employs or retains under contract any representative, agent, salesman, canvasser, solicitor or installer operating in this state under the authority of the person or its subsidiary for the purpose of selling, delivering, or the taking of orders fro the sale of tangible personal property or any services taxable under this chapter or otherwise solicits and receives purchases or others by any agent or salesman;

o   Solicits, pursuant to a contract with a broadcaster or publisher located in this state, orders for tangible personal property by means of advertising which is disseminated primarily to consumers located in this state and only secondarily to bordering jurisdiction;

o   Solicits orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities. Notwithstanding the previous sentence, a seller who contracts with a provider of call center services shall not be deemed to benefit from telecommunication activities occurring in this state or from the location in this state of authorized installation, servicing, or repair facilities merely as a result of contracting for and receiving only call center services from a call center located in this state. The preceding sentence shall only apply for call centers, as authorized or specified in Division 3 of Article 17 of Chapter 10 of Title 41, and placed in service in this state on or before October 1, 2003;

o   Has, under a franchise or licensing arrangement or contract, a franchisee or licensee operating under its trade name;

o   Solicits, pursuant to a contract with a cable television operator located in this state, orders for tangible personal property by means of advertising which is transmitted or distributed over a cable television system in this state;

o   Solicits orders for tangible personal property by means of a telecommunication or television shopping system which is intended by the person to be broadcast by cable television or other means of broadcasting, to consumers located in this state;

o   Maintains any other contract with this state that would allow this state to require the seller to collect and remit the tax due under the provisions of the Constitution and laws of the United States; or

o   Distributes catalogs or other advertising matter and by reason thereof receives and accepts orders from residents, within the State of Alabama, shall be subject to all the provisions of this chapter and shall, except as otherwise provided in subsection (f), on or before the 20th day of the month following the close of each month file with the department a return for the preceding month in such form as may be prescribed by the department showing the total sales price of the tangible personal property sold by such seller, the storage, use, or consumption of which became subject to the tax imposed by this article during the preceding month and such other information as the department may deem necessary for the proper administration of this article

 

Sellers may satisfy these requirements by one of these methods:

  • Using the collecting, reporting and remitting provisions of Article 2, Chapter 23 of Title 40, Code of Alabama, or
  • Using the collecting, reporting and remitting provisions created by the Simplified Sellers Use Tax Remittance Act codified at §§40-23-191 through 40-23-199, Code of Alabama.

(Rule 810-6-2-.90.03, Alabama Department of Revenue, effective October 22, 2015, applicable on or after January 1, 2016)

(10/26/2015)

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