Out of State Book Retailer Subject to Use Tax in Alabama

Alabama has held that an out-of-state retailer that sold books and educational materials was subject to Alabama use tax since the taxpayer had sufficient contacts or nexus in Alabama to require it to collect, report, and remit use tax. During the school year, the taxpayer mailed catalogs, order forms, and promotional coupons to schools as well as homes where children were homeschooled. At the schools, classroom teachers distributed catalogs and order forms to students, collected the completed order forms then mailed the forms and payment to the taxpayer. The taxpayer then shipped the items to the attention of the teacher and the teacher distributed the items to the students. The state held that the taxpayer clearly directed its sales activities towards Alabama residents when it mailed catalogs, order forms, and promotional materials to thousands of school teachers and parent educators in the state during every month of the school year in the period at issue. The taxpayer also availed itself of Alabama’s economic market by making nearly $18 million in sales to Alabama customers during the period at issue. As such, the taxpayer had due process nexus with Alabama. The state also held that the taxpayer had commerce clause nexus with Alabama since the activities of the teachers in Alabama were clearly and significantly associated with the taxpayer’s ability to establish and maintain a market for its sales in-state. By agreeing to distribute the materials to students, the teachers were in substance soliciting or at least promoting sales on behalf of the taxpayer. That the teachers were not required to do so, may not personally benefit from the activities, may also purchase items from the taxpayer, and were motivated to help their students and not the taxpayer, were deemed irrelevant. The teachers did substantially more than just distribute the taxpayer’s materials. They gathered completed order forms and compiled them on a master order form. They mailed the master order form and the money to the taxpayer, received and distributed the purchased items, and communicated and worked with the taxpayer to resolve any issues concerning the transactions. In substance, the teachers were a voluntary sales force whose activities in Alabama were essential and necessary for the taxpayer to make sales in Alabama. As a result, the presence and activities of the teachers on behalf of the taxpayer established a physical presence for the taxpayer in Alabama sufficient to establish commerce clause nexus. (ScholasticBook Clubs, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 14-374, March 25, 2016)

Posted on July 25, 2016