Alabama has proposed a rule requiring out-of-state vendors that have a “substantial economic presence” in the state to collect and remit to the state use tax from Alabama customers. Defining “substantial economic presence” as meaning retail sales of tangible personal property in Alabama that exceed $250,000 per year based on the previous calendar year’s sales, the proposal is a direct challenge to the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which found that a business had to be physically present in a state before that state could require the business to collect use tax on its behalf.
“I think if this regulation is enacted, it will absolutely result in battles in court,” said Matthew Hedstrom, attorney in Alston & Bird’s State & Local Tax Group. “It’s unclear whether smaller retailers that would be affected by the regulation would want to spend money on litigation.”
Clark Calhoun, partner in the firm’s State & Local Tax Group, added: “The proposed regulation is different from the click-through nexus cases because it explicitly says a physical presence is not required, only a threshold amount of sales and some other activity within Alabama that doesn’t rise to the level of physical presence.”