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Alabama Gets Physical: Upholding the Quill Standard in Local Sales Tax Nexus

Alabama ALJ Bill Thompson voided a local sales tax assessment asserted against an electronics retailer because the retailer did not have a physical presence in the taxing jurisdictions. Although the retailer sent repairmen into the local taxing jurisd

October 4, 2011

Alabama ALJ Bill Thompson voided a local sales tax assessment asserted against an electronics retailer because the retailer did not have a physical presence in the taxing jurisdictions. Although the retailer sent repairmen into the local taxing jurisdictions, the retailer did not have a physical store or sales representatives in the localities, and therefore lacked a sufficient nexus. Cohen Elec. and Appliances, Inc. v. Alabama Dep’t of Revenue, Dkt. No. S10-989 (Admin. Law Div. July 12, 2011).

The ALJ applied the law established by Yelverton’s, Inc. v. Jefferson Cnty, 742 So.2d 1216 (1997). The court in Yelverton’s held that local taxing jurisdictions are subject only to constitutional due process restraints on intrastate sales, rather than Commerce Clause restraints, because interstate commerce is not implicated. The Yelverton court, however, interpreted a Department of Revenue regulation, Ala. Admin. Code r. 810-6-3-.51(2), as requiring a retailer without a physical store to collect tax only if it has a salesforce soliciting sales in the local jurisdiction. The taxpayer in Cohen Electronics sent repairmen, but not salespeople, into the taxing jurisdictions, and therefore was not required to collect tax.

Judge Thompson suggested that the Department could amend its regulation to conform to current due process standards and even suggested adopting a factor presence standard as an option. Notwithstanding the Judge’s comments, taxpayers with intrastate sales in Alabama should be aware of this unusual regulation.

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