Alabama is defying a 1992 Supreme Court ruling about out-of-state sales-tax collection requirements, and catalog companies are warning that similar regulations could quickly spread to other states.
The regulation, which took effect on January 1st, reads in part: “…an out-of-state seller with a substantial economic presence in Alabama will be required to collect and remit Alabama tax on its sales into the state, regardless of whether it has an Alabama physical presence.” It applies to merchants “who had $250,000 or more in retail sales sold into Alabama in the previous year.”
The Quill Corp. v. North Dakota ruling prevents states from requiring companies without a physical presence (nexus) to collect their sales tax from in-state customers, and the American Catalog Mailers Association (ACMA) says the Alabama regulation is of questionable constitutionality.
Noting that no other group or organization was stepping forward to oppose the Alabama action, the ACMA said in a letter to the catalog industry at large published on its website that it is willing to initiate legal action as the named plaintiff, but would need financial assistance from the industry to mount the fight.
“As we have seen with other creative ways to pierce nexus, other states will rapidly adopt the Alabama example,” the organization wrote in its letter. “Soon enough, the Quill precedent will be effectively destroyed and remote marketers will have to do battle with virtually every state seeking sales tax on out-of-state marketers. This unconstitutional act should not go unchallenged!”
Other states have tried various ways to get around the “nexus” requirement. As this article from Nolo explains, so-called “Amazon laws” such as the one in Illinois consider nexus to be when a retailer uses in-state affiliate marketers to drive traffic to their websites.
Colorado tried requiring out-of-state retailers to notify its residents that sales or use tax was due with each transaction and forced retailers to file an annual report with the state.
While the Supreme Court didn’t rule in the Colorado case – it sent the case back to the appeals court – at least one Justice made it clear he had sympathy for the states and a willingness to hear a challenge to Quill.
Al Urbanski, Senior Editor of industry trade publication Direct Marketing, wrote about Alabama’s regulation last month and said the state might be deliberately trying to provoke a judicial challenge to the Quill constitutional standard.
Noting that no material challenge had been mounted by ecommerce or catalog companies, Urbanski said the way thing stood, “it will be the Joe Pesci’s sketchy litigator from My Cousin Vinny who’s likely to be defending remote sellers and their bottom lines before the highest court in the land.”
Update 1/12/16: Edited for clarity.