Alabama looks to tax marketplace facilitators
- Apr 6, 2018 | Gail Cole
Update, 4.11.2018: Alabama Governor Kay Ivey has signed HB 470 into law, saying, “This legislation will help bring about a competitive balance between brick-and-mortar retailers in Alabama and third-party online sellers, while streamlining the collection of use taxes that are currently due on online transactions. Use taxes are an important funding resource for Alabama’s General Fund and local governments, and the monies collected will be used to improve and expand much needed services.”
Starting January 1, 2019, qualifying marketplace faciliators need to register to collect and remit the simplified sellers use tax on sales made through the marketplace, or comply with the notice and reporting requirements detailed below.
The Alabama Legislature has pushed through a measure that would amend the state’s Simplified Sellers Use Tax Remittance program and expand collection and remittance requirements for marketplace facilitators. The measure, House Bill 470, was rapidly approved by both houses and is awaiting Governor Kay Ivey’s signature.
Simplified Sellers Use Tax Remittance recap
The Simplified Sellers Use Tax Remittance (SSUT) program was created to encourage non-collecting out-of-state retailers to voluntarily register with the state. Program participants collect and remit a special flat 8 percent tax on all Alabama sales rather than different rates in different jurisdictions. Another perk of the program is that participants can’t be audited or reviewed by local tax authorities.
The flat 8 percent translates to a loss in some Alabama municipalities, where combined state and local rates can be as high as 10 or even 11 percent. However, since remote businesses can’t be compelled to collect and remit unless they have nexus (a physical connection to the state that triggers a tax collection obligation), their participation in the SSUT program brings the state and localities revenue they would not otherwise see. Some sales and use tax revenue is better than none.
HB 470 keeps the simplified sellers use tax rate at 8 percent and clarifies that collection and remittance of simplified sellers use tax relieves program participants from collecting and remitting any additional state and local sales tax on those transactions. It would also help the state bring in more tax revenue from remote marketplace sellers. In addition, it would redistribute collected monies so municipalities and counties with higher populations would obtain more of it.
Developing substantial nexus in the state
The measure clarifies that an out-of-state vendor who participates in the SSUT program and subsequently establishes nexus in Alabama through the acquisition of an in-state business is entitled to continue participating in the program.
If this sounds hand-tailored to a specific situation, it’s because it is. Amazon is acquiring Whole Foods, a grocery chain with multiple locations in Alabama. As the SSUT program was originally designed, an out-of-state retailer that establishes nexus with Alabama would no longer be eligible for the 8 percent rate. HB 470 would allow Amazon and other such businesses to continue to collect and remit the flat 8 percent SSUT.
New requirements for marketplace facilitators
HB 470 would also require marketplace facilitators (e.g., Amazon, eBay, or Etsy) that make a qualifying amount of sales in Alabama in the preceding 12 months to make a choice: Either collect and remit the 8 percent SSUT on “all sales made through the marketplace facilitator’s marketplace by or on behalf of a marketplace seller,” or “report such sales.” The measure defines “qualifying amount” as $250,000, “or an amount as otherwise prescribed” by the Alabama Department of Revenue.
A qualifying marketplace facilitator would need to register to collect and remit the simplified sellers use tax on retail sales made through its marketplace by January 1, 2019. If it chooses not to register, it would have to:
- Report such retail sales
- Provide customer notifications, within constitutional limitations
Unlike Washington and certain other states with notice and reporting requirements for non-collecting sellers, Alabama’s proposed law doesn’t explain exactly what customer notifications and reports need to contain. Presumably details would be forthcoming.
Timely filing discount
Starting January 1, 2019, eligible sellers who properly collect and remit the simplified sellers use tax “in a timely manner” would be entitled to deduct and retain 2 percent of the collected tax. However, the discount is capped at $400,000: It doesn’t apply to any taxes collected and remitted in excess of $400,000.
No timely filing discount is permitted if the tax owed is “not timely reported and remitted to the department pursuant to the program procedures.”
Protection from class action lawsuits
The bill prohibits the bringing of a class action suit in Alabama against a marketplace facilitator on behalf of customers for an overpayment of simplified sellers use tax collected and remitted on its marketplace sales.
Additional details are available in the text of HB 470.
States aggressively pursuing remote sales tax revenue
Alabama is one of numerous states looking to expand remote sales tax collections; others include Connecticut, Georgia, Idaho, Illinois, and Oklahoma. In addition, the Supreme Court of the United States will soon reconsider the physical presence limitation that currently prevents states from taxing many remote sales; the eventual ruling could make it easier for states to tax out-of-state sellers.
Sales and use tax compliance is becoming ever more complex for retailers. Learn more.