State & Local Tax Alert

Transcription

1 State & Local Tax Alert Breaking state and local tax developments from Grant Thornton LLP Alabama Department of Revenue Updates Regulation on Simplified Sellers Use Tax Remittance Program The Alabama Department of Revenue has issued amendments to its regulation on the Simplified Sellers Use Tax Remittance Program. 1 The amendments provide additional details on collection, remittance and filing under the program. The program provides sellers a simplified alternative to the tax collection, reporting, and remittance obligations imposed by an Alabama regulation on out-of-state sellers that do not have a physical presence in the state. 2 Background In late 2015, the Alabama Department of Revenue promulgated a regulation which required out-of-state sellers to collect and remit sales tax in the absence of a physical presence in the state. 3 Under the regulation, out-of-state sellers have to collect sales and use tax if they have substantial economic presence in the state. Substantial economic presence exists if sellers perform certain activities in the state 4 and if their prior calendar year retail sales of tangible personal property in the state are greater than $250,000. The regulation was a direct challenge to Quill Corp. v. North Dakota 5 and was in response to Justice Anthony Kennedy s concurring opinion in Direct Marketing Association v. Brohl which asked that the legal system... find an appropriate case for the U.S. Supreme Court to reexamine Quill. 6 The regulation took effect October 22, 2015 and applied to transactions occurring on or after January 1, Release date May 4, 2016 States Alabama Issue/Topic Sales and Use Tax Contact details Mark Arrigo T E mark.arrigo@us.gt.com Randy Holloway T E randy.holloway@us.gt.com Brad Brown T E brad.brown@us.gt.com Jamie C. Yesnowitz Washington, DC T E jamie.yesnowitz@us.gt.com Lori Stolly Cincinnati T E lori.stolly@us.gt.com Priya D. Nair Washington, DC T E priya.nair@us.gt.com 1 ALA. ADMIN. CODE r , amended effective April 23, ALA. ADMIN. CODE r ; Notice To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17, ALA. ADMIN. CODE r For further information on this regulation, see GT SALT Alert: New Alabama Regulation to Require Out-of-State Sellers to Collect Sales and Use Tax Contrary to Supreme Court Precedent. 4 The activities are described in ALA. CODE (b). The regulation actually references ALA. CODE in its entirety, but the only list of activities in this statute is contained in subsection (b) U.S. 298 (1992) S. Ct (2015) (Kennedy, J., concurring). For a discussion of this case, see GT SALT Alert: U.S. Supreme Court Holds Challenge to Colorado s Sales and Use Tax Notice and Reporting Requirements Not Barred by Tax Injunction Act. 7 Notice To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17,

2 Grant Thornton LLP - 2 On June 9, 2015, Alabama enacted the Simplified Seller Use Tax Remittance Act. 8 The purpose of the Act was to establish the program, 9 an easily-accessible method for eligible sellers to remit, on behalf of their customers, use tax on items delivered into Alabama. 10 The Act took effect on October 1, 2015, and provided for the Department to promulgate rules and regulations related to the implementation, administration, and participation in the program. 11 The Department s initial promulgation of the regulation explaining the program, which took effect on October 22, 2015, originally only contained a definition for eligible seller. The new amendments update the regulation to provide additional definitions and provisions on collection, remittance and filing under the program. Flat Tax Rate on Sales An eligible seller 12 is defined as an individual, trust, estate, fiduciary, partnership, limited liability company, limited liability partnership, corporation or other legal entity that sells tangible personal property or a service, but has no physical presence in Alabama, or is not otherwise required to register with the Department. 13 Eligible sellers who participate in the program can collect, report, and remit a statewide 8 percent tax on sales made into Alabama. 14 Specifically, the rate is capped at 8 percent, regardless of whether the actual combined rate is greater. 15 Purchasers and sellers will not be liable for any additional state or local use tax if they collect and remit the 8 percent 8 S.B. 437, Laws The Act refers to the program as the Simplified Use Tax Remittance Program. However, ALA. ADMIN. CODE r refers to the program as the Simplified Sellers Use Tax Remittance Program. 10 S.B. 437, Laws 2015, Introductory Clause. 11 ALA. CODE On April 4, 2016, Alabama enacted Act 110 (S.B. 233), Laws 2016, revising the definition of eligible seller under ALA. CODE to provide that [s]uch seller shall remain eligible for participation in the Simplified Use Tax Remittance Program unless the seller establishes a presence through a physical business address for the purpose of making instate retail sales within the state of Alabama or becomes otherwise required to collect and remit sales or use tax pursuant to Section through an affiliate making retail sales at a physical business address in Alabama, provided the seller was a participant in the program for at least 6 months prior to establishing such physical presence or filing obligation. This definition has not been revised in ALA. ADMIN. CODE r (2) to date. Additionally, prior to the enactment of Act 110, ALA. CODE provided restrictions on access to the program if there was a change in federal law, either by a U.S. Supreme Court decision or federal legislation, that removes current federal limitations on states ability to enforce their sales and use tax jurisdiction against businesses that lack an instate physical presence. Act 110 revised this language to limit the restriction only if federal legislation is enacted. The Act took effect on April 4, ALA. ADMIN. CODE r (2). Specifically, the definition provides that these sellers do not have to otherwise register with the Department under ALA. CODE , dealing with taxation on sales and leases of tangible personal property to a state agency, or ALA. CODE , dealing with conditions for remote entity nexus. 14 ALA. ADMIN. CODE r (11). 15 ALA. ADMIN. CODE r (11)(a), (b).

3 Grant Thornton LLP - 3 tax. 16 While participation in the program is voluntary, sellers must go through an approval process. 17 Eligible sellers must provide purchasers with an invoice that contains the eligible seller s program account number and provides that the simplified sellers use tax was collected and will be remitted on the purchaser s behalf. 18 Discount for Participating Sellers Eligible sellers participating in the program are entitled to a discount of 2 percent of the simplified sellers use tax collected and timely reported and remitted to the Department. 19 Eligible sellers are required to maintain records of all sales shipped or otherwise delivered into Alabama, including copies of invoices showing the purchaser s name, address, purchase amount, and the amount of simplified sellers use tax collected. 20 These records are required to be made available for review and inspection on the Department s request. 21 Only the Department may audit and review eligible sellers participating in the program. 22 Use Tax Return Under the program, each month, eligible sellers are required to file a simplified sellers use tax return reporting all sales shipped or otherwise delivered into Alabama. 23 The return is due on or before the 20th day of the month next succeeding the month in which tax accrues 24 and must be filed even when there is no tax liability. 25 Returns and payments must be submitted through the Department s electronic online filing and payment system, My Alabama Taxes. 26 Late returns and payments will be subject to interest and penalties. 27 The returns must include statewide totals of the simplified sellers use tax collected and remitted but do not have to include any information about the location of purchasers or amounts of sales into a specific city or county Id. 17 Id. See also ALA. ADMIN. CODE r (13)-(15). 18 ALA. ADMIN. CODE r (12). Sample language provided by the regulation: Seller has collected the simplified sellers use tax on this transaction(s) and the tax will be remitted on the customer s behalf to the Alabama Department of Revenue. Seller s program account number is SSU-RXXXXXXXXX. 19 ALA. ADMIN. CODE r (17). Accordingly, if an eligible seller makes $10,000 of taxable sales in Alabama and collects $800 in tax pursuant to the 8 percent tax rate, the eligible seller would be allowed to retain $16 as a vendor discount. 20 ALA. ADMIN. CODE r (20). 21 Id. 22 ALA. ADMIN. CODE r (21). The rule specifically prohibits Alabama localities from auditing or reviewing eligible sellers in the program. 23 ALA. ADMIN. CODE r (16). 24 ALA. ADMIN. CODE r (16)(a). 25 ALA. ADMIN. CODE r (16)(b). 26 ALA. ADMIN. CODE r (16)(c). 27 ALA. ADMIN. CODE r (16)(e). 28 ALA. ADMIN. CODE r (16)(d).

4 Grant Thornton LLP - 4 Commentary The enactment of the Simplified Seller Use Tax Remittance Act and the creation of the underlying program reflects an effort by Alabama to ease the compliance costs to remote sellers created by the promulgation of the Department s recent regulatory challenge to Quill. 29 The program establishes a simple way for Internet sellers to remit use tax 30 as an alternative to the collection, remittance and filing obligations under Ala. Admin. Code r The purpose of Ala. Admin. Code r , in turn, is to explain the filing opportunity provided by the Act. 32 The Department has touted many benefits of the program, including the following: Sellers can file one simple return that reflects one flat tax rate no matter where in Alabama products are delivered; The seller and the purchaser are relieved from any additional state and local sales or use taxes; Purchasers from whom the tax has been collected may apply for a refund or take a credit on their consumer s use tax return if the 8 percent collected by the eligible seller exceeds the purchaser s combined state and local tax rate imposed in their local jurisdiction; and The local portion of the simplified sellers use tax will be distributed to cities and counties of Alabama based on population. 33 The discount built into the program serves as an incentive for sellers to change their processes and volunteer for the program. 34 Even though Alabama promulgated a regulation whereby out-of-state sellers are forced to collect Alabama sales and use taxes in direct contradiction to U.S. Supreme Court precedent, the program appears to be an effort by the state to balance the interests of both in-state brick and mortar sellers and remote sellers and may serve as a template for improving compliance in the area. The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, 29 ADOR Offers Simple Way for Internet Sellers to Remit Use Tax, Alabama Department of Revenue, Sep. 4, Id. 31 Notice To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17, Economic Impact Statement for APA Rule, Alabama Department of Revenue, Nov. 18, ADOR Offers Simple Way for Internet Sellers to Remit Use Tax, Alabama Department of Revenue, Sep. 4, Id.

5 Grant Thornton LLP - 5 facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed.