Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
In this article, Bradley Arant Boult Cummings LLP's Bruce P. Ely discusses Newegg v. Alabama Department of Revenue, the case challenging Alabama's economic nexus statute and how it might wind its way to the U.S. Supreme Court, which its prominent backers hope.
By Bruce P. Ely
Bruce is Co-Chair of the State and Local Tax Practice Group and a partner in the Birmingham, Alabama office of the multistate law firm of Bradley Arant Boult Cummings LLP. The Practice Group represents taxpayers before various state and local government departments of revenue as well as the circuit and appellate courts of Alabama, Tennessee and Mississippi. He is a long-standing member of the Multistate Tax Advisory Board for Bloomberg BNA.
“We now have our court case,” Alabama Commissioner of Revenue Julie Magee proudly announced on June 14 at the annual meeting of the Federation of Tax Administrators in Baltimore, Maryland, referring to an appeal filed in the Alabama Tax Tribunal by Newegg, Inc., a California-based online retailer of computer software and related items ( Newegg, Inc. v Ala. Dep't of Revenue, Ala. Tax Tribunal, No. S. 16-613, appeal filed 6/8/16).
The notice of appeal from a final assessment of sales tax was filed by Newegg’s well-respected tax counsel, Brann & Isaacson, LLP of Lewiston, Maine, which also represents the companies involved in similar South Dakota nexus litigation. Commissioner Magee has been one of the more outspoken advocates for a new challenge to the U.S. Supreme Court’s 1992 landmark decision, Quill Corp. v. North Dakota, in light of Justice Anthony Kennedy’s oft-cited invitation to revisit Quill in his concurring opinion in Direct Mktg. Ass'n v. Brohl, ____ U.S. ____, ____ S.Ct.____ (March 3, 2015) (2015 Weekly State Tax Report 12, 3/20/15). Brann & Isaacson, LLP represented DMA in that case as well. Newegg’s lead counsel, George Isaacson, has been publicly critical of the Alabama Department of Revenue’s (ADOR) economic nexus regulation, commenting at the same FTA meeting that, “for a state tax agency to act unilaterally, in knowingly and intentionally issuing a regulation that defies Supreme Court precedent, is a mischievous deed that undermines the rule of law.”
Unfortunately, the appeals process in Alabama could require as many as four stops along the way, beginning with the discovery process, hearing(s), post-hearing briefs, etc. and the eventual ruling by the Alabama Tax Tribunal. The losing party can then appeal to the Montgomery County Circuit Court, which has broader jurisdiction and offers a trial de novo, although the ATT’s ruling is considered prima facie correct. Ala. Code § 40-2B-2(m)(4). In order to fast-track the appeal through these two levels, the parties must agree on an abbreviated discovery process and a tight set of stipulations of fact and skillfully urge both the tribunal and the circuit court to hold expedited hearings and issue expedited rulings.
Once the circuit court rules, the appeal would typically lie with the Alabama Court of Civil Appeals, the intermediate appellate court. There may be a procedural vehicle by which one or both parties could ask that the case be transferred to the Alabama Supreme Court, but that’s unlikely to be granted. It’s more likely that the court of civil appeals would decide the case, and the party who loses at that level would be forced to seek a writ of certiorari from the Alabama Supreme Court—a discretionary decision.
If the Alabama Supreme Court eventually denies the writ of certiorari, or if the court takes up the ruling of the court of civil appeals and issues its own, then, and only then, may the losing party file a cert. petition with the U. S. Supreme Court. Thus, it’s likely that the South Dakota nexus litigation will move more rapidly due to the expedited appeal process included in the unique South Dakota legislation.
The ADOR has requested an extension of time in which to file its answer with the tax tribunal. No doubt Chief Judge Bill Thompson will carefully study the case before making any decision, although the scope of his jurisdiction is somewhat limited. Under Alabama Code Section 40-2B-2(g)(6), the tax tribunal has jurisdiction to decide “questions regarding the constitutionality of the application of statutes to the taxpayer and the constitutionality of regulations promulgated by the Department of Revenue, but shall not have the power to declare a statute unconstitutional on its face (emphasis supplied).” Newegg’s notice of appeal has carefully attempted to circumscribe that jurisdictional barrier by asking the tax tribunal either to invalidate the economic nexus regulation on its face, or as applied to Newegg.
Judge Bill Thompson has a track record of invalidating ADOR regulations that he believes exceed the bounds of the underlying statute, are unconstitutional, or are otherwise invalid, as recently as last month in Russell Cty. Cmty. Hospital v. Ala. Dep't of Revenue, Ala. Tax Tribunal, No. 15-1683, 6/13/16 , involving the ADOR’s regulation involving the sales tax as applied to customized computer software.
In the meantime, many online and catalog vendors with customers in Alabama are taking a wait-and-see approach with this litigation. Others, however—approximately 50 so far according to the ADOR as of July 18—have taken advantage of the agency’s special voluntary disclosure program, including most recently Amazon.com and Overstock.com. The Department’s SSUTR Program is somewhat of an odd duck. It requires an applicant to prove a negative, i.e., that it does not have physical presence nexus with Alabama, either directly or by virtue of Alabama’s affiliate nexus statute. If the applicant qualifies, then it generally is required to begin collecting and remitting a flat 8 percent sales tax to the ADOR (only) on a prospective basis. If the applicant has received a final assessment of sales tax from the ADOR, most applicants so far have successfully negotiated a reduction or cancellation of those assessments. But ADOR officials warned the author the other day that their “go and sin no more” approach may soon change.
Copyright © 2016 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)