The Alabama Department of Revenue's Chief Administrative Law Judge, Bill Thompson, again expressed his "respectful" disagreement with the Alabama appellate courts over the test for determining nexus as between a vendor in one Alabama municipality and its customers in another municipality, when the vendor delivers the goods to customers in its own vehicles or sends in employees or contractors to make service or installation calls.
In the latest case, the taxpayer was a consumer electronics and appliance store in the City (and County) of Montgomery and had no other physical locations outside the City. Cohens Electronics and Appliances, Inc. v. Alabama Department of Revenue, Admin. Law Div. Dkt. No. S. 10-989 (July 12, 2011). The taxpayer did, however, have repair persons who made service calls to customers in and outside of Montgomery on multiple occasions. The facts of the case indicate that the repairmen would bring repair parts with them to the job but that no sales tax on the parts was charged to the customer. Instead, the taxpayer treated the transaction as a withdrawal of inventory and paid sales tax on the cost of the parts to Montgomery, where its store was located. The ADOR determined, and the Judge agreed, that since the taxpayer was selling those parts at retail, sales tax would normally be due to the municipality and county where those parts were delivered and installed.
The taxpayer may have lost the battle but won the war since Judge Thompson felt compelled to follow both appellate court precedent and two previous Administrative Law Division rulings in finding that the vendor did not have taxable nexus in those municipalities where the repairs were performed since it didn't have either a physical location or soliciting salespersons in those jurisdictions, citing the landmark case of Yelverton's, Inc. v. Jefferson County, Alabama, 742 So.2d 1216 (Ala. Civ. App. 1997), cert. quashed (Ala. 1999) (caveat: the authors' firm represented the taxpayer in that case). Because the ADOR didn't present any evidence that the repairmen also made sales of parts, electronics, etc. while visiting the customers, the judge ruled against the ADOR, pointing to the intra-state nexus regulation on which the Alabama Court of Civil Appeals had also relied.
He none-too-gently reminded the ADOR that it hasn't attempted to amend or repeal the regulation, which he believes is inconsistent with Due Process nexus standards clarified in Quill Corporation v. North Dakota. He also implied that the ADOR could simply repeal the regulation and thus create a broader, more liberal nexus standard for inter-city and inter-county sales—which is debatable.
Because the taxpayer had already paid sales tax to Montgomery, it also argued that it qualified under the so-called "anti-whipsaw" statute, which has the effect of mitigating the risk of double taxation of an intra-state sale or rental transaction. See Ala. Code § 40-23-2.1. Judge Thompson rejected that argument because the taxpayer had not complied with the literal requirements of the statute. The Judge pointed out the irony, however, that the taxpayer could now apply for a refund from the City and County of Montgomery for sales tax paid on the subject repair parts (or at least on subsequent transactions), because title to the repair parts passed in the municipalities where the repairs were performed but the taxpayer did not have taxable nexus with those municipalities and therefore had no collection obligation.
It is unknown whether the ADOR will appeal this ruling.
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