Recent Alabama Tax Tribunal Rulings Remind Us of Two Traps for the Unwary Taxpayer (and Tax Practitioner)

Associate Alabama Tax Tribunal Judge Ralph M. Clements, III, recently appointed by Gov. Kay Ivey, has hit the ground running and issued two well-reasoned rulings that nevertheless illustrate traps for unwary taxpayers and their tax advisors.

Time Critical Filings with the Alabama Tax Tribunal or Department of Revenue

The latest ruling involves a taxpayer who filed her own Notice of Appeal (NOA) with the Tax Tribunal. Alabama law requires taxpayers or their authorized representative to file their NOA with the Tribunal within 60 days (formerly 30 days) of the date the Notice of Final Assessment was mailed to them, or personally served if sooner, commonly known as the “mailbox rule.” Taxpayers may file their NOA not only via the U.S. Postal Service but through certain designated private delivery services, and because of recent negative changes in USPS filing rules, we expect to see more ATT and Department of Revenue (ALDOR) Hearing Section filings involving private delivery services. See our previous SALT Alert here.

That list is included in an ALDOR administrative rule that in turn incorporates by reference the delivery services listed in U.S. Treasury regulations and most recently IRS Notice 2016-30. The list contains the usual suspects, such as Federal Express, DHL Express, and UPS, but then refers specifically to seven separate delivery services provided by UPS.

A close reading of the list reveals that UPS Ground is not one of the approved UPS services. Unfortunately, that’s the one the taxpayer chose to use, and her appeal arrived at the Tribunal one day past the 60-day filing deadline.

The ALDOR’s Legal Division filed a motion to dismiss the appeal for lack of jurisdiction (in this case, an untimely filing) and Judge Clements reluctantly granted it — but not without some angst:

This result is absurd. If there was a way to rule otherwise in accordance with the law as written, I would gladly take it. As it stands, this absurd result is the one that the language of the statutes and regulations requires. The Tribunal has no choice but to apply the law exactly as written.

Thankfully, Judge Clements then referred the matter to the ALDOR’s Office of Taxpayer Advocacy for handling because the advocate is authorized to, among other things, declare a final assessment void or find other equitable grounds of relief. So remember, UPS Next Day Air or 2^nd Day Air or Next Day Air Saver is good; UPS Ground is not (Mack v. ALDOR, Dkt. No. Inc. 25-0309-RC (March 26, 2026)).

The Scope of Alabama’s Conformity with the IRS Check-the-Box Regulations

The next trap for the unwary taxpayer, or more often unwary tax practitioner, involves Alabama’s conformity with the IRS’ landmark “Check-the-Box” Regulations, Treas. Reg. §§ 301.7701-2 and -3, applicable to Subchapter K entities such as general partnerships, limited partnerships and LLCs. Almost all states that levy a net income tax long ago conformed with the Check-the-Box Regs, but Alabama is one of a handful of states that continues to apply the elections under those regs for not only its income tax, but also to state and local sales and use tax, rental/lease tax and certain excise taxes (but not the state business privilege tax). See Ala. Code § 10A-5A-1.07(b); ALDOR Rev. Proc. 98-1.

For example, if the manager of an LLC timely files a Form 8832 election with the IRS for the LLC to be taxed as either a C corporation or S corporation, then Alabama automatically follows suit and taxes the entity in the same manner. Conversely, if the manager makes no federal election (or checks a different box on the 8832), then by “default” a multi-member LLC will be taxable for both federal income tax and many Alabama tax purposes as a partnership. And by default, a single member LLC will be classified as a sole proprietorship, corporate division, or branch office of a foreign entity, depending on the tax status of the member.

In another recent case also involving a pro se taxpayer/petitioner, a newly formed trust purchased a semitruck from an out-of-state vendor and simultaneously entered into a long-term rental/operator agreement with an affiliated entity. The purchaser-trust applied for a rental tax account with ALDOR. Typically, Alabama-based taxpayers rely on the “wholesale sale” exclusion from the state and local consumer use tax for the truck (or other equipment) because they are purchasing it to in turn lease it to another party. See Ala. Code § 40-23-60(4)(j).

As expected, the Department argued here that a single leasing transaction, involving one piece of equipment and between related parties, does not create a bona fide leasing transaction, so the resale exemption does not apply. Instead, the Tax Tribunal focused on the proper sales/use tax classification of the entities involved and, as a result, caused the entire house of cards to collapse.  

Noting Alabama’s expanded version of the IRS Check-the-Box Regulations, Judge Clements determined that the lessee partnership, TVF Trucking, LLC, automatically converted into a single member, disregarded entity upon the death of its second member since its manager did not file with the IRS an election to be classified as either a C or S corporation.

Then, because the trust that purchased the semitruck was classified as a grantor trust and Alabama has conformed with the federal tax treatment of grantor trusts since a 2006 act, the trust also was disregarded for Alabama tax purposes. The sole beneficiary of the trust was also the sole member (and manager) of the lessee-LLC. Thus, after a detailed analysis, Judge Clements found the lease between the grantor trust and the single member LLC to be a “legal nullity…” The taxpayer was deemed to have purchased the semitruck individually and then leased it to himself.

The consumer use tax assessment was therefore upheld, and we understand that no appeal or application for a rehearing was filed. This ruling cautions that when structuring any type of business transaction involving pass-through entities, remember that Alabama conforms with the Check-the-Box Regs for purposes of several state and local taxes — not just income tax (NBS Memorial Trust v. ALDOR, Dkt. No. S. 24-0533-RC (Feb. 19, 2026)).

Commissioner of Revenue Appoints New Director of Tax Policy and Governmental Affairs

Recently Commissioner Vernon Barnett split up the many roles that Cameran Clark was dutifully filling by appointing a seasoned government relations and fiscal policy expert, Heather Lowe, to the position of Director of Tax Policy and Governmental Affairs. Lowe’s resume is impressive, highlighting 17 years of service with the State Insurance Department, the Alabama Law Enforcement Agency, the Legislative Fiscal Office and the Governor’s Executive Budget Office, before being appointed Governmental Relations Manager with ALDOR approximately two years ago.

Clark remains as Secretary of the Department which involves several functions, including oversight of Department administrative rules and proposals.