Alabama Enacts Economic Nexus Provision

Effective Date: October 1, 2018

Threshold: $250,000 and one or more of the activities below

Measurement Date: Previous calendar year

Includable Transactions: Retail sales; Marketplace sales excluded from the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: January 1 following the year the threshold is exceeded

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)

UPDATE: Newegg Inc., which filed a lawsuit regarding Alabama’s economic nexus regulation, won its case against the state and Alabama is poised to revise the regulation now that the South Dakota v. Wayfair case has been decided. The Alabama Department of Revenue (DOR) had assessed Newegg in 2016 under the economic nexus regulation. The Alabama DOR filed a motion on June 1, 2018 requesting the Alabama Tax Tribunal to enter a final order voiding the assessment against Newegg. In the motion, the DOR stated that it intends to amend the regulation to conform to the South Dakota v. Wayfair decision and does not plan to further enforce the rule until after it is amended, if needed, to conform with the Wayfair decision. On June 14, 2018, the Alabama Tax Tribunal voided the DOR’s assessment against Newegg. We will continue to monitor and keep you updated on the state’s economic nexus regulation. (Newegg, Inc. v. Ala. Dep’t of Revenue , Ala. Tax Trib., No. S. 16-613, 6/14/18).

UPDATE: The state of Alabama has announced that it will enforce the provisions of their economic nexus provisions prospectively effective October 1, 2018. Sellers who qualify for the Simplified Seller’s Use Tax Program are encouraged to apply. This eliminates the need to register with home rule authorities and a single rate is collected across the state. Marketplace providers are required to collect effective January 1, 2019 but are encouraged to register as of October 1, 2018 to minimize the requirement for remote sellers selling through their platform to separately register. Find Alabama’s full notice in response to the Wayfair decision here.

To learn more about the the South Dakota v. Wayfair decision, read our news update on the case. To find more information for remote sellers following the Wayfair decision, visit our Remote Seller Resources page.

Posted on October 26, 2015