United States

Alabama: Online Retailer Challenges Alabama’s Substantial Economic Nexus Sales Tax Regulation

Jun 20, 2016
From KPMG TaxWatch

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On June 8, 2016, an online retailer, Newegg Inc., appealed a final assessment of Seller’s Use Tax to the Alabama Tax Tribunal. Newegg’s assessment relates to January and February of 2016, the first two months following the effective date of the Department’s controversial substantial economic nexus regulation. The regulation, which became effective January 1, 2016, imposes sales and use tax registration and collection requirements on out-of-state retailers that perform one or more statutorily specified activities in the state and have sales of tangible personal property to Alabama customers exceeding $250,000 per year. The regulation is part of a growing effort on the part of states to bring a case before the U.S. Supreme Court that can be used to overturn the decision in Quill Corp. v. North Dakota. Recall, Quill requires a retailer to have some physical presence in a state before the state can require the retailer to collect and remit sales and use tax on sales to in-state customers.  Similar litigation is also pending in South Dakota over recently-passed economic sales and use tax nexus legislation. Newegg is also a party to that lawsuit.  

In its appeal, Newegg requests that the final assessment be cancelled on grounds that Newegg does not have physical presence in the state as to satisfy the substantial nexus standard under Quill, and therefore the Department’s attempt to apply its regulation against Newegg is unconstitutional. Newegg further asserts that Alabama’s regulation is invalid as it conflicts with both Alabama’s sales and use tax statutes and the requirements of the U.S. Constitution, both of which require physical presence in the state. Lastly, Newegg asserts that even if the Department’s regulation has any force or effect, the Department’s application of the rule to an online retailer with no physical presence in the state is inconsistent with Alabama’s sales and use tax statutes, and therefore unauthorized and invalid. For more information on this Alabama Tax Tribunal Notice of Appeal, please contact Scott Jackson at (404) 614-8688.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.