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Alabama's "Non-Nexus Use Tax Remittance" - Will Flat Tax Fall Flat?

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On May 6, the Alabama Senate Finance and Taxation General Fund Committee approved SB 437 which establishes a mechanism for companies without nexus in Alabama to collect and remit tax from customers located in Alabama.  That's an interesting proposition and one, in my opinion, that will generate very little revenue for the state of Alabama.

The Bill establishes a flat 8% use tax rate that is remitted to the state of Alabama.  The tax is collected from customers in the same way that other sales and use tax is collected.  The vendor discount is only 2%.  The collection and remittance of tax would not be an admission to any type of nexus and would not subject the company to any other income tax reporting requirements.

From a legislator's perspective, this bill probably sounds like a very reasonable and feasible solution to the challenge of compelling companies without nexus in Alabama to collect and remit tax on sales that they make to Alabama customers.  The bill must assume that if the process of collecting and remitting tax were just easier, more businesses would want to take on the administrative burden of being the state's collection agent for the use tax.  In some respect, they may be right. Historically, Alabama has had one of the most challenging sales tax compliance structures in the country. So from a simplification standpoint, I'll give the legislature some credit.

Beyond that, however, I'm not sure what their thinking is.  When I work with clients, rarely do they ask me to find states where they can collect and remit sales tax where they don't have nexus!  Most multistate businesses limit their focus to managing the tax due in states where they do have nexus and doing everything they can to limit the nexus creating activities in any additional states.  If a company wanted to volunteer to collect the Alabama tax they would already be doing so.  Further, given the quirky local tax nexus rules that exist in Alabama, it may be possible for a company with nexus in Alabama to collect less than the 8% use tax required under the "non-nexus use tax remittance" program.

I suspect that SB 437 will pass and everyone will feel that they have really done something special.  You just never know, there may be some company that will take advantage of this opportunity.

Your thoughts?  Feel free to submit your comments and/or questions below.

Ned Lenhart, CPA

Ned Lenhart, CPA is the founder and President of Interstate Tax Strategies, P.C. (“ITS”). Ned has over 28 years of varied state tax consulting experience including roles as the Director of Compliance for the Missouri Department of Revenue, SALT Manager for Arthur Andersen in Kansas City, and Director with Deloitte in their Atlanta office from 1994 to 2003. He started ITS in 2003 to assist local and national companies by helping them develop proactive strategies to managing their multi-state sales tax obligations.

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Comments

1 Responses to Alabama's "Non-Nexus Use Tax Remittance" - Will Flat Tax Fall Flat?

  • Posted by Bruce on May 20, 2015 10:24am:

    Ned-- I agree with you. If they offered a substantially larger discount, ala' Utah's 18%, then I think that may entice some vendors to register, OR if the US Supreme Court is even PRESENTED via cert. petition with a case in which to substantially limit Quill...
    Bruce

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