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Higher Use Tax Rates Could Breed Legal Action

  • Dec 18, 2015 | Gail Cole

 The U.S. Supreme Court says use tax shouldn't be higher than sales tax.

A glance at the sales and use tax detail report for Covington County, Alabama reveals some interesting discrepancies between sales tax rates and use tax rates.

Consumer and seller use tax rates for certain industries are higher than the sales tax rates for those industries:

  Sales Tax Rate
Use Tax Rate
Auto 1% 1.5%
Farm 1% 1.5%
Mfg. machine 1% 1.5%

Showing 1 to 3 of 3 entries

What it means

If you buy a car in Covington County, you pay 1% sales tax. But if you buy it outside of the county and then register it in Covington County, you pay 1.5% use tax. The same goes for products taxed at the farm rate and the manufacturing machine rate.

Commerce Clause Violated

Covington County isn’t the only locality in Alabama to have higher use tax rates than sales tax rates. But county attorney Stacy Brooks isn’t worried about what goes on in other counties. She is concerned that Covington County could find itself in legal trouble if the sales and use tax rates don’t match (Andalusia Star News).

The Alabama Department of Revenue has notified Covington County that the U.S. Supreme Court considers it a violation of the Commerce Clause of the U.S. Constitution to have a higher use tax than sales tax. The Supreme Court held in Associated Indus. Of Missouri v. Lohman (1994), “Missouri’s use tax scheme impermissibly discriminates against interstate commerce on a statewide basis.”

In the Court opinion, Justice Thomas wrote, “We agree that, in localities where the use tax exceeds the sales tax, the system is impermissibly discriminatory….”

It seems to have taken some time for the impact of the ruling to trickle down to Alabama. Even now, according to Brooks, no change is required. However, the attorney noted that the county “opens itself to a potential class action lawsuit if it doesn’t act.” County Council Chairman Bill Godwin is urging commissioners to respond to the news quickly.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.