Alabama is challenging the U.S. Supreme Court’s decision in Quill Corp. v. North Dakota with its latest tax proposal. The regulation would require out-of-state sellers to collect and remit to the state use tax from Alabama customers if their sales in the state exceed $250,000 in the prior calendar year and if it had a substantial economic presence in the state. The Quill decision found that businesses had to be physically present in a state before the state could require them to collect use tax on its behalf.
Clark Calhoun, partner in Alston & Bird’s State & Local Tax Group, indicated that the rule will be promulgated and go into effect on Jan. 1, 2016.
“From the comments of the governor on Twitter, it sounds like they are proceeding with the rules,” Calhoun said. “He indicated that despite potential Constitutional problems, they were going to proceed with the rule and wait for someone to sue the state.
“It’s certainly an interesting stance by both the governor and the Department of Revenue,” Calhoun continued. “It’s in direct contravention of existing Supreme Court precedent. Following the hearing, the commissioner said the same thing over Twitter, so it looks like it will pass.
“It is inevitable that taxpayers will be faced with state action that seeks to manipulate current law, but when thinking about altering an existing Supreme Court precedent, we might want to tread carefully,” he cautioned. “We wouldn’t think this is appropriate in a country that respects the rule of law.”
“The state shouldn’t take it into account its own hands to overturn old Supreme Court law,” agreed Matthew Hedstrom, attorney in Alston & Bird’s State & Local Tax Group. “They’re basically saying that Quill has a shelf life, and it’s expired. That would be troubling even outside the tax context.”
“It’s being pitched as the states versus the big retailers, but the way the regulation is drafted it would capture many other companies,” said Calhoun. “We don’t view the threshold as so high that it would only capture large, sophisticated businesses; not that it would be constitutionally sound if it did.”
The hearing was strictly administrative, according to Calhoun, without action by legislature.
“By rule, they have to accept comments on the proposal, but they can proceed to pass the regs as they see fit,” he said.