The Alabama Department of Revenue has issued a regulation that adopts economic nexus provisions requiring out-of-state sellers to collect sales tax from Alabama customers even if they do not have physical presence in the state. The regulation is effective Jan. 1, 2016, and was issued in spite of the long-standing requirement of physical presence in a state as a prerequisite for requiring out-of-state sellers to collect sales tax under the Supreme Court’s 1992 decision in Quill Corp. v. North Dakota.1
The regulation provides that out-of-state sellers that are without a physical presence in Alabama but that are making retail sales of tangible personal property into the state are required to collect and remit sales tax from Alabama customers if the out-of-state company sells more than $250,000 in tangible personal property to Alabama customers and undertakes any one of the following activities:
- 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 in Alabama
- Qualifies to do business or registers with Alabama to collect the tax levied by the regulation
- Employs or retains under contract any representative, agent, salesperson, canvasser, solicitor, or installer operating in Alabama for the purpose of selling, delivering, or taking orders for the sale of tangible personal property or any services taxable under the regulation or otherwise solicits and receives purchases or orders by any agent or salesperson
- Solicits orders pursuant to a contract with a broadcaster or publisher located in Alabama for tangible personal property by means of advertising that is disseminated primarily to consumers located in Alabama
- 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 Alabama or benefits from authorized installation, servicing, or repair facilities in the state
- Has, under a franchise or licensing arrangement or contract, a franchisee or licensee operating under its trade name in Alabama
- Solicits orders pursuant to a contract with a cable television operator located in Alabama for tangible personal property by means of advertising which is transmitted or distributed over a cable television system in Alabama
- Solicits orders for tangible personal property by means of a telecommunication or television shopping system that is intended by the person to be broadcast by cable television or other means of broadcasting to consumers located in Alabama
- Distributes catalogs or other advertising matter and by reason thereof receives and accepts orders from residents within Alabama
Out-of-state sellers can comply with the sales tax collection requirement in one of two ways:
- Collect and remit the state and local sales tax under the existing rules. This requires the seller to register, collect, and remit tax in each local jurisdiction in which it has customers.
- Collect sales tax at a flat rate of 8 percent under the Alabama Simplified Seller Use Tax Remittance Act. If, based on the purchaser’s location, the combined state and local rates exceed 8 percent, no additional tax is due by the seller or customer. If the combined state and local rates are less than 8 percent, the customer can apply for a refund. The Simplified Seller Use Tax Remittance Act is available only to out-of-state sellers without physical presence in Alabama.
Although the new regulation is a direct challenge to Quill, out-of-state sellers are faced with deciding if they should collect sales tax from customers under a provision that ultimately may be rejected by the courts, or if they should not collect the tax and face exposure for the uncollected tax if the regulation is upheld by the courts.