Local sales and use tax rates in Alabama change frequently. The Alabama Department of Revenue’s Local Tax Notices webpage lists at least one rate or administrative change per month—and often much more than one change. Such constant fluctuations in tax rates or administration create compliance challenges for all businesses required to collect and remit Alabama sales and use tax, particularly for those that sell into multiple tax jurisdictions. Fortunately, Alabama seller use tax remittance is about to get simpler for some sellers.
Alabama’s Remote Entity Nexus law has been in effect since August 2003. On January 1, 2014, a new seller nexus rule took effect, identifying the conditions under which out-of-state sellers are considered to be engaged in business in Alabama. Under this seller’s responsibility to collect and pay state sales tax and seller’s use tax, for example, soliciting sales or advertising in Alabama through mail, cable television, or catalogs triggers nexus. In addition, the state local nexus rule was reworked so that when a sale triggers state sales or use tax, it also triggers the corresponding local sales and use tax (read more about when out of state businesses must collect local sales taxes in Alabama).
A flat tax rate
Now, to help simplify and increase sales and use tax compliance, the state has enacted the Simplified Seller Use Tax Remittance Act. Beginning October 1, 2015, the Simplified Seller Use Tax Remittance Act “allows eligible sellers to participate in a program to collect, report and remit a flat eight percent (8%) sellers use tax on all sales made into Alabama.” Participating sellers will not be required to collect tax at a rate greater than 8%, “regardless of the combined actual tax rates that may otherwise be applicable.” Under the Act:
“The required monthly reporting from the eligible seller shall only include statewide totals of the simplified sellers use taxes collected and remitted, and shall not require information related to the location of purchasers or amount of sales into a specific locality.”
The flat rate may appeal to all sellers but it isn’t available to every seller. Access to the program is gated and “eligible sellers must apply and be accepted into the program.” According to the Act:
“The department shall have exclusive responsibility for reviewing and accepting applications for participation and for the administration, return processing, and review of the eligibility of sellers participating in the program.”
Perks of enrollment are many. In addition to not having to account for multiple rates, program participants cannot be audited or reviewed by local tax authorities. Sellers are nonetheless required to maintain accurate records of all Alabama sales and the simplified sellers use tax collected. The Alabama Department of Revenue may request these documents at any time. As explained in the Act:
“Eligible sellers shall maintain records of all sales delivered into Alabama, including copies of invoices showing the purchaser, address, purchase amount, and simplified sellers use tax collected. Such records shall be made available for review and inspection upon request by the department.”
Refunds and discounts
Since numerous localities in Alabama levy sales and use taxes at rates less than 8%, participating sellers may request a refund or credit for excess taxes paid. Refund requests may be made once per year, “in a manner prescribed by the department.”
Any eligible seller that “continues to collect, report, and remit the simplified sellers use tax and otherwise complies with all procedures and requirements of the program” may receive a discount of 2% on all simplified sellers use taxes properly remitted, according the provisions of the act.
Amnesty is available for eligible participating sellers with “any uncollected remote use tax that may have been due on sales made to purchasers in the state for the twelve-month period preceding the effective date of the eligible sellers’ participation in the program.” Please note that amnesty applies “only to simplified use tax due from an eligible seller in his or her capacity as an eligible seller and not to remote use taxes due from a seller in his or her capacity as a buyer.”
In addition, amnesty does not extend to any outstanding taxes for which the seller has received notice that an audit has commenced.
What if the federal law changes?
Remote sales tax legislation such as the Marketplace Fairness Act and the Remote Transaction Parity Act has long been considered—and thwarted—at the federal level (see Patience and Clarity Still Required). Legal challenges to the policies preventing states from collecting remote sales tax also abound. Indeed, even Supreme Court Justice Kennedy has referenced the “serious continuing injustice” faced by Colorado and many other states” seeking the right to collect remote sales tax from out-of-state sellers.
Should there be a change in federal law, “whether it be federal legislation or by decision of the U.S. Supreme Court,” businesses registered with the Alabama Department of Revenue under the Simplified Sellers Use Tax Act for a period of at least 6 months prior to the change in law “will continue to qualify for the program.”
Even simplified seller use tax remittance is complicated. True sales and use tax simplification comes with automation. Learn more.