Alabama: New Exemption Reporting Requirements Under Consideration
- Aug 5, 2015 | Gail Cole
Update 8.21.2015: Senate Bill 24 has been enacted. Effective January 1, 2016, all companies and persons seeking an exemption from Alabama sales, use and lodgings tax must obtain on an annual basis an exemption certificate from the Alabama Department of Revenue. New filing requirements also take effect January 1.
Two measures under consideration in the Alabama Legislature’s current special session seek to alter requirements for documenting exempt sales. If enacted, they will significantly alter the way in which businesses in Alabama handle sales and use tax exemptions.
SB 24 “would require all persons or companies that are exempt from the payment of Alabama sales, use and lodgings taxes, other than governmental entities, to annually obtain a certificate of exemption from the Department of Revenue. In addition, this bill would require certain persons or companies exempt from the payment of Alabama sales, use, and lodgings taxes to file reports with the Department of Revenue providing information regarding exempt transactions.”
“Under current law, all persons or companies which are exempt from the payment of Alabama sales, use, and lodgings taxes are not required to obtain a certificate of exemption.”
If approved as written, persons or companies without valid exemption certificates “will no longer be allowed to make tax exempt purchases or rent tax exempt accommodations.” Annual renewal of exemption certificates is required under the measure.
The measure also authorizes the Alabama Department of Revenue to penalize persons and companies for lack of compliance. Civil penalties would be the greater of the following: “two-thousand dollars ($2,000) or two times any state and local sales, use, and lodgings due for the transactions.” Individuals and businesses may also be “barred from the use of any certificate of exemption for up to two years,” if the department deems such action necessary.
This bill would take effect January 1, 2016.
Information reports for grocery items
SB 25 “would require wholesalers of grocery items, including tobacco products, and licensed beer distributors, making sales within Alabama, on which sales or use tax was not collected at the time of sale, to provide information reports with the Department of Revenue regarding those exemptions.”
This measure seeks to help enforce the collection of sales and use taxes. It requires the following:
- “Each licensed beer distributor shall report sales to all licensees for which an exemption from sales or use tax was claimed at the time of the sale, to the Department of Revenue.
- Each seller of groceries and grocery products, including tobacco products, selling or distributing to a retailer in this state, in which at least seventy-five percent (75%) of total monthly sales or in which $5,000 or more in monthly sales, regardless of the percentage, are sold to retailers, and for which an exemption from sales or use tax was claimed at the time of the sale, shall report such sale to the Department of Revenue….”
The frequency of reporting and filing is based on the amount of total non-taxed sales per month, during the preceding calendar year:
- Monthly reporting when total non-taxed sales average more than $6,000 but less than $10,000 per month.
- Annual reporting when the average non-taxed sales is $6,000 or less per month.
Failure to file reports as required may result in a penalty of $1,000 per reporting period.
This bill would take effect October 1, 2016.
Both measures need a two-thirds vote in order to pass during the special session. That’s a pretty tall order for a legislature that can’t seem to agree on much of anything. Nonetheless, the measures should be taken seriously because, if enacted, they will seriously impact the way businesses handle sales, use, and lodging tax exemptions.
Manage exemption certificates in the cloud. Learn more.