Progress Report on ADOR’s Non-Nexus Vendor Remittance Program

State & Local Tax Alert: Alabama Edition

Client Alert

The Alabama Department of Revenue’s (ADOR) well-publicized effort to subject remote sellers to the state's sales and use tax regime is designed primarily to force either the U.S. Supreme Court or Congress to settle questions as to the future viability of the Quill physical presence standard. Readers may recall that the nexus threshold has been called into question following the Supreme Court's decision last year in Direct Marketing Association v. Brohl, particularly Justice Kennedy’s concurring opinion calling on the Court to revisit Quill.

To that end, the ADOR implemented its controversial economic nexus regulation, which as of January 1, 2016, requires certain out-of-state vendors with annual sales into Alabama of at least $250,000 to comply with Alabama's sales and use tax laws (Ala. Admin. Code 810-6-2-.90.03). As part of a carrot-and-stick approach, however, the ADOR successfully lobbied for legislation last year to allow remote sellers to voluntarily register under the new “Simplified Use Tax Remittance Program.” In response to our query as to the success of the program to date, ADOR officials noted that, as of March 31, there are 39 companies participating in this program with several more applications pending. In the first quarter of 2016, the program collected approximately $460,000. More than $300,000 of that was collected in the month of March. ADOR officials seemed pleased with those statistics.

The program allows approved out-of-state sellers to collect, report, and remit monthly a flat 8 percent seller’s use tax on their Alabama sales. Participants are not required to collect or remit any additional sales or use taxes if the actual combined (state/county/city) tax rate is greater than the flat rate, which is often the case. And even better, the ADOR handles the distribution of the remittances in excess of the state 4 percent rate to the local governments, based on population (see Ala. Admin. Code rules 810-6-2-.90.02 and -90.03 [recently amended]).

The ADOR's initial September 2015 notice of the program stated: "In the event that there is a change in federal law . . . that removes current federal limitations on states' ability to enforce their sales and use tax jurisdiction against businesses that lack a physical presence, those businesses registered with the Department as a participant in the program at least six months prior to the change in law will continue to qualify for the program." Senate Bill 233, signed into law by Gov. Bentley on April 4 as Act # 2016-110, eliminates the grandfather exception if the Supreme Court eventually overrules or limits Quill but it also allows a participant in the program to construct a distribution center or other non-retail facility in the state if the participant registered with the ADOR “at least six months prior to establishing such physical presence...”