Remote sellers still have time to apply for tax amnesty in Alabama
- Sep 24, 2019 | Gail Cole
Although Alabama was one of the first states in the nation to require out-of-state sellers to collect and remit sales tax, the Alabama Department of Revenue has yet to enforce its economic nexus rule. Alas, all good things must come to an end: The department says it will enforce economic nexus for remote retailers and marketplace facilitators starting October 1, 2019.
A quick recap of economic nexus in Alabama
In 2015, the Alabama Department of Revenue launched a “frontal assault” on a physical presence rule that prevented states from taxing remote sales. Department of Revenue Rule 810-6-2-.90.03 required retailers with at least $250,000 in annual sales in the state to register and collect tax on their Alabama sales starting January 1, 2016.
The department fully expected the rule to be challenged and was prepared to defend it before the Supreme Court of the United States, if given the opportunity. That didn’t happen.
However, the Supreme Court did agree to hear South Dakota v. Wayfair, Inc., another challenge to the physical presence rule. And on June 21, 2018, South Dakota won: The Supreme Court overruled the physical presence rule, thus authorizing states to base a remote sales tax collection obligation on economic activity alone (economic nexus).
After the Wayfair decision, Alabama announced it would enforce its economic nexus rule prospectively as of October 1, 2018. A notice published by the department on July 3, 2018, stated, “While this rule technically was effective January 1, 2016, its validity was in question pending the outcome of the Wayfair decision. Because Wayfair removed the constitutional impediments to the rule, it will be enforced going forward.”
Remote retailers were advised to apply to participate in the Alabama Simplified Sellers Use Tax (SSUT) program, which enables them to collect a flat 8 percent sellers use tax on their Alabama sales. The flat 8 percent tax applies to all taxable sales in the state, regardless of the ship-to address. Sellers that don’t participate in the SSUT program are required to collect the rate in effect at the location of each sale.
Collection requirement for marketplace facilitators in Alabama
In April 2018, ever eager for remote sales tax revenue, Alabama lawmakers imposed a choice on marketplace facilitators with more than $250,000 in sales in the state: Either register to collect SSUT on all sales made through the marketplace or comply with non-collecting seller use tax notice and reporting requirements.
At the time, marketplace facilitators opting to collect SSUT were advised to do so by October 1, 2018. However, they could wait until January 1, 2019, to comply with the non-collecting seller reporting requirements.
Tax amnesty for remote retailers and marketplace facilitators
To ease the transition to collection, in June 2019, the Alabama Legislature updated tax amnesty and class action provisions for eligible remote sellers. Under Act 2019-382, “an eligible seller participating in the program shall be granted amnesty for any uncollected remote use tax that may have been due on sales made to purchasers in the state for all periods preceding October 1, 2019.” Additionally, “no class action may be brought against an eligible seller … for an overpayment of simplified sellers use tax.”
The Alabama Department of Revenue clarifies: “Although the state began enforcement of its collection requirement for large sellers in October 2018, and for marketplace facilitators in January 2019, the state’s legislature … enacted amnesty for eligible sellers who did not collect taxes on transactions prior to their participation in the SSUT program and register with the SSUT program to begin collecting on or before October 1, 2019.”
The October 1, 2019, deadline is approaching. The Department of Revenue encourages eligible online sellers and marketplace facilitators that are subject to a collection requirement to register for the SSUT remittance program by October 1, 2019. Once registered sellers and facilitators must remain in the program for at least three years.
Updated guidelines for vendors drop-shipping into Alabama
The Alabama Department of Revenue also updated guidance related to drop-shipping. The state considers drop-shipping to be two separate transactions:
- One transaction between the vendor/drop-shipper and the reseller
- Another transaction between the reseller and the Alabama customer
Vendors/drop-shippers are advised to obtain a resell certificate from resellers who purchase goods to resell to customers in Alabama (i.e., drop-shipped to an Alabama address).
When the sale between the remote reseller and the Alabama customer is taxable, the remote reseller is responsible for collecting and remitting applicable taxes to the Alabama Department of Revenue.
Next steps for retailers and marketplace facilitators
It’s extremely challenging to keep up with remote sales tax collection requirements in the United States. As evidenced by the events in Alabama, these requirements are often a moving target. This is new territory for states, and it will take time for them all to determine the best way to enforce remote sales tax collection.
Unfortunately, that doesn’t make compliance any easier for businesses.
Keeping apprised of changing nexus requirements in all states is the first step to compliance. For up-to-date information, check out Avalara’s seller’s guide to nexus laws and sales tax collection requirements.