Online Sales Tax Case to Take Most of 2017 in Alabama

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By Chris Marr

Dec. 13 — Alabama’s e-commerce sales tax battle faces at least another nine months of procedure at the state tax tribunal before a ruling could free the case to advance toward higher courts.

The Alabama Tax Tribunal case is heading into factual discovery, depositions and filing of briefs that stretches through August, barring a schedule change, according to a proposed scheduling order the parties jointly filed Dec. 2. The tribunal will determine if a hearing is needed after briefs are filed.

During the New York University 35th Institute on State and Local Taxation, Alabama Tax Tribunal Chief Judge Bill Thompson said from the audience that a trial may be scheduled for the end of 2017.

The Alabama Department of Revenue is defending a legal challenge from online retailer Newegg Inc. over a department regulation requiring certain out-of-state retailers to collect and remit sales tax. The state, like South Dakota and others, is openly challenging the U.S. Supreme Court standard from Quill Corp. v. North Dakota504 U.S. 298 (1992), which restricts states’ sales tax enforcement powers to companies with an in-state physical presence.

If the Alabama case is to reach the Supreme Court—where Alabama officials hope to argue that Quill should be overturned—it will first need a decision from the Alabama Tax Tribunal that can be appealed, possibly through three additional layers of state courts.

Thompson hadn’t approved the proposed schedule as of Dec. 13, although he did order the parties to jointly file it.

State Acknowledges ‘Quill’ Defiance

The case focuses on an Alabama DOR regulation ( Administrative Rule 810-6-2-.90.03) that requires out-of-state sellers that sell more than $250,000 of goods into the state annually to collect and remit sales tax on those transactions.

Alabama’s revenue department has acknowledged that the disputed regulation violates Quill, but argues the Supreme Court should overturn the rule.

“Developments in the national economy have diminished the applicability of the reasoning in Quill and have made the physical presence rule established by Quill unworkable,” the department’s attorneys wrote in their Aug. 26 answer in the Newegg litigation, alluding to the growth of e-commerce.

At the same time it imposed the new regulation, Alabama also introduced a simplified seller remittance program that has helped entice Inc. and Inc., among others, to begin collecting and remitting sales tax to the state. The program lets out-of-state companies voluntarily remit sales tax at a flat 8 percent rate, rather than calculating the proper rate for each city and county. Companies get to keep 2 percent of the tax collected as an incentive to participate.

Regulation Opposed for Multiple Reasons

Newegg has argued the regulation not only violates the Quill physical presence standard but also contains a vague “catch-all” provision that violates the company’s right to due process.

The disputed provision says companies are subject to the rule if they engage in certain specified conduct or maintain “any other contact with this state that would allow this state to require the seller to collect and remit the tax due under the provisions of the Constitution and the laws of the United States.”

The catch-all provision creates a “contradiction in terms,” Newegg argued in its Sept. 29 reply brief, because the U.S. Constitution as interpreted in Quill requires an in-state physical presence, which is the standard the Alabama DOR is deliberately contesting.

To contact the reporter on this story: Chris Marr in Atlanta at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

The proposed scheduling order is at

The disputed Alabama DOR regulation is at

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