United States: SALT Top Stories Of 2015

2015 was notable in large part due to a series of decisions issued by state and federal courts which could pave the way for future resolution of several gray areas in state and local taxation. For example, the U.S. Supreme Court issued several major decisions impacting state and local taxes, including Obergefell v. Hodges and Comptroller of the Treasury v. Wynne. In Obergefell, the Court held that same-sex couples had the right to marry. States that did not recognize same-sex marriage prior to the decision issued guidance on filing returns after Obergefell. In Wynne, the Court determined that the failure of Maryland law to allow a credit against county personal income tax for Maryland residents for their passthrough income from an S corporation's out-of-state activities that was taxed by other states was unconstitutional. The costly financial impact of the decision is emerging as Maryland starts issuing refunds. The amount of interest to be paid is unclear and a class action complaint on this issue has already been filed.

At the state level, both New York and Vermont issued decisions that helped practitioners gain insight in those states on what constitutes a unitary business. Meanwhile, Alabama is testing the boundaries of a 1992 U.S. Supreme Court decision, Quill Corp. v. North Dakota, by promulgating a regulation that challenges the nexus requirement of physical presence. Practitioners may see the first challenges to this move in 2016 as the regulation takes effect at the beginning of next year. In addition, many states enacted either click-through nexus statutes, affiliate statutes or both. The states are clearly moving faster on this issue than Congress, where little progress was made on the federal remote seller nexus bills in 2015.

The Multistate Tax Compact three-factor apportionment election controversy continued in 2015 as a series of taxpayer-unfavorable decisions were issued. The most anticipated and watched case, Gillette Co. v. Franchise Tax Board, is expected to be decided in early January 2016. Meanwhile, the Multistate Tax Commission (MTC) made progress on both its Arm's-Length Adjustment Service (ALAS) and model market-based sourcing regulations in 2015. The success of the MTC's ALAS program is contingent on ten states participating in the program. With only six states currently enlisted, it remains to be seen whether the MTC will be able to get the additional states needed to commit to the program.

On the political front, Illinois and Pennsylvania continue to work on resolving their budget issues and a resolution by the end of 2015 does not look promising. Meanwhile, three jurisdictions, Nevada, Connecticut and the District of Columbia, faced strong opposition from the business community and had to revisit legislation enacted in 2015.

Voters in Nevada may get the opportunity to decide the fate of the state's unpopular commerce tax in 2016 if enough signatures are obtained to get the question on the November ballot. Also, the use of revenue targets as a means to lower tax rates found favor in North Carolina and the District of Columbia, which utilized these provisions in the past year.

Alabama tests boundaries of Quill

In recent years, taxpayers, practitioners and tax authorities alike have recognized the fact that Quill Corp. v. North Dakota1 was decided during a different technological era, and that perhaps in today's electronic economy, the result requiring that a taxpayer have physical presence to be subject to the collection and remittance requirements of a state sales and use tax might be different. In Direct Marketing Association v. Brohl, a U.S. Supreme Court case in which the Tax Injunction Act (TIA) 2 did not bar a challenge in federal court of Colorado's sales and use tax notice and reporting requirements for out-of-state (remote) retailers, Justice Anthony Kennedy addressed the Quill issue in a concurring opinion. 3 Stating that the "legal system should find an appropriate case" for the U.S. Supreme Court to reexamine Quill, the concurring opinion was regarded as a pointed invitation, the likes of which are rarely seen in the jurisprudential context.

The Alabama Department of Revenue swiftly responded to Justice Kennedy's invitation by promulgating a regulation4 that directly challenges the U.S. Supreme Court's decision in Quill by requiring out-of-state sellers to collect and remit sales tax in the absence of a physical presence in the state. 5 The regulation took effect October 22, 2015 and applies to transactions occurring on or after January 1, 2016. 6

While the regulation will be implemented in the coming months, the road to the U.S. Supreme Court is long and uncertain. Once the impact of the regulation becomes substantial, a lawsuit may be filed testing the validity of the regulation. The lawsuit would then need to work its way through the appellate process, be appealed to the U.S. Supreme Court and be heard by the Court. In the meantime, out-of-state sellers will be forced to collect and remit the tax while that viable challenge emerges.

Under the regulation, out-of-state sellers will be required to collect and remit sales and use tax if they meet two conditions: (a) prior calendar year retail sales of tangible personal property in the state are greater than $250,000, based on the previous year's sales; and (b) the seller performs one or more of the activities listed in Alabama Code Section 40-23- 68(b). 7

The activities described in Section 40-23-68(b) generally include:

  • Maintaining, occupying or using an Alabama place of business (by itself or through a subsidiary or agent).
  • Qualifying to do business or registering with the state to collect the sales and use tax.
  • Utilizing employees, agents, salesmen or other personnel operating in Alabama to sell, deliver or take orders for the sale of tangible personal property or services taxable under the Alabama sales and use tax law, or otherwise soliciting and receiving purchases or orders by agents or salesmen.
  • Soliciting orders for tangible personal property by mail if substantial and recurring, and if the retailer benefits from banking, financing, debt collection, telecommunication or marketing activities occurring in Alabama, or benefits from authorized installation, servicing or repair facilities located in Alabama.
  • Using a franchisee or licensee operating under its trade name.
  • Soliciting orders for tangible personal property through advertising disseminated primarily to Alabama customers; advertising transmitted or distributed over an Alabama cable television system; or through a telecommunication or television shopping system intended for broadcast to Alabama customers.
  • Maintaining any contract with Alabama that would allow Alabama to require collection and remittance of sales and use tax under the U.S. Constitution.
  • Distributing catalogs or other advertising matter resulting in orders from Alabama residents. 8

As an alternative to following the statutory provisions in the Alabama Code regarding use tax collection, reporting and remittance obligations, sellers potentially may apply the provisions under the Simplified Sellers' Use Tax Remittance Program. 9 A few details with respect to the Program should be noted, considering that other states ultimately may look to the Program as a template for improving compliance in this area. 10 Admittance into the Program requires the seller to complete an application process with the Department. 11 Sellers must go through an approval process. 12 Under the Program, the simplified sellers' use tax rate is 8 percent of the sales price of any tangible personal property sold or delivered into Alabama by an eligible seller. 13 Purchasers and sellers will not be liable for any additional state or local use tax if they collect and remit the 8 percent tax. 14

Specifically, the rate is capped at 8 percent, regardless of whether the actual combined rate is greater. 15 A taxpayer that pays a higher use tax under the Program than the actual tax imposed in the area where the sale was delivered can apply for a refund or credit. 16 Sellers will be allowed to "keep a percentage of collections as compensation for compliance." 17 This discount is 2 percent of the amount of the use tax collected and timely remitted. 18 The program also provides an amnesty provision. 19 Eligible sellers will be granted amnesty for any uncollected remote use tax on sales in Alabama for the twelve-month period preceding the effective date of the sellers' participation in the Program. 20

To view the full article please click here.

Footnotes

1 504 U.S. 298 (1992).

2 28 U.S.C. § 1341.

3 135 S. Ct. 1124 (2015) (Kennedy, J., concurring). For a discussion of this case, see GT SALT Alert: U.S. Supreme Court Holds Challenge to Colorado's Sales and Use Tax Notice and Reporting Requirements Not Barred by Tax Injunction Act.

4 ALA. ADMIN. CODE r. 810-6-2-.90.03.

5 For further information on this regulation, see GT SALT Alert: New Alabama Regulation to Require Out-of-State Sellers to Collect Sales and Use Tax Contrary to Supreme Court Precedent.

6 Notice – To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17, 2015.

7 ALA. ADMIN. CODE r. 810-6-2-.90.03(1).

8 ALA. CODE § 40-23-68(b)(1)-(10).

9 ALA. ADMIN. CODE r. 810-6-2-.90.03(2).

10 For additional information regarding the Program, see Notice – To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17, 2015; ADOR Offers Simple Way for Internet Sellers to Remit Use Tax, Alabama Department of Revenue, Sep. 4, 2015.

11 ALA. CODE § 40-23-192(c).

12 Id.

13 ALA. CODE § 40-23-193(a).

14 Id.

15 ALA. CODE § 40-23-193(c).

16 ALA. CODE § 40-23-196.

17 Notice – To all persons, firms and corporations making retail sales of tangible personal property into the State of Alabama, Alabama Department of Revenue, Nov. 17, 2015.

18 ALA. CODE § 40-23-194.

19 ALA. CODE § 40-23-199.

20 Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.