Wednesday, May 11, 2016
Session Ends with Budgets;
Yet No Real Resolution of Money Woes
The Alabama Legislature delivered on predictions of early budgets and ending its 2016 regular session 12 calendar days early, but left Montgomery without fully funding Medicaid or agreeing on a prison plan to avert possible federal takeover.
Money posed the greatest obstacle when lawmakers began in February, and it remains the issue now that they’ve left. Legislators came to and departed from the session without a desire to find new revenue. They tossed around ideas for shifting revenue and capitalizing on the $1 billion oil spill settlement, but in the end, those ideas got dropped.
Lawmakers did expand a voluntary program to entice remote sellers to collect and remit sales taxes from Alabama consumers. Since that program took effect in October 2015 and the Alabama Revenue Department created a rule to bolster it, 39 remote sellers without a physical presence in the state have voluntarily remitted almost $1 million in sales and use taxes to Alabama.
Early in the session, lawmakers and the governor listened to retailers and others and worked quickly to block the state’s largest city from creating its own minimum wage, passing a preemption law that says only the state can set a minimum wage and other mandatory benefits.
And lawmakers took the first step toward regulating for-profit audit firms and ending over-aggressive collections for the state’s cities and counties. Thanks for talking to your legislators and your association on this and other issues throughout the session to ensure the voice of retail was heard. We are better together.
A special session sometime before the end of the year is possible, and your association will once again be there to protect your interests.
Of the 1,005 bills legislators introduced the session that began Feb. 2 and ended May 4, 108 carried the most concern for retailers. An account of how select bills among those fared during the 2016 regular session follows.
Medicaid Funding Dominates Session;
Cuts Coming; Special Session Possible
Alabama’s Medicaid Agency, which provides health coverage from almost 1 million Alabamians – mostly children, the elderly and disabled – faces deep cuts to its providers or services under a budget that the agency says is $85 million less than it needs to operate. How to fund Medicaid dominated this session and will be at least one of the topics of any special session.
PROVIDER CUTS POSSIBLE: Medicaid Commissioner Stephanie Azar said the agency will give “proper notice” to providers about any cuts that may be coming. She has said reimbursement rate cuts for providers could generate up to $50 million. Another solution would be for Medicaid to switch to a pharmacy preferred provider plan, or single prescription provider, which Azar has said would save an estimated $19 million to $30 million in state dollars. The governor has said he is looking at possible additional revenue for the agency in 2017, as well as possible cuts. Dropping prescription drug coverage for adults entirely would save $50 million to $60 million, Azar said. Also discussed has been the loss of the primary care bump, which pays doctors at Medicare levels. Azar has said that change would generate $14.7 million. The agency has not yet come forward with its plan for living within the budget lawmakers passed. Azar said the agency will have to discuss any proposed cuts with the Center for Medicaid Services (CMS).
NO BAIL OUT: A last-minute attempt to provide Medicaid with the funding it needed for 2017 fell through on the next to last day of the session. HB569 by Rep. Steve Clouse, R-Ozark, would have borrowed against the $1 billion BP oil spill settlement to give Medicaid a one-year revenue boost as well pay down some of the state’s debt and fund road projects in coastal counties.
RCO DELAY: Act No. 2016-377 by Rep. April Weaver, R-Brierfield, and Sen. Greg Reed, R-Jasper, extends the Oct. 1 deadline set in the 2013 state law establishing a community-based managed care structure for Medicaid, known as regional care organizations (RCO). The governor says he is “not giving up” on implementing RCOs, which are intended to improve care while reducing costs. The legislation leaves it up to the Alabama Medicaid Agency to decide when RCO certification will occur. A federal waiver approved in February enables the state to implement the community managed care program. Azar said the legislation passed on the last day of the regular session gives the agency flexibility to work with the Centers for Medicare and Medicaid Services and the probationary RCOs on an alternative implementation plan. Rep. John F. Knight Jr., D-Montgomery, attempted to limit the administrative costs paid to RCOs. The budget committee never even considered HB361, which said administrative costs could not exceed the average administrative cost of Medicaid over the last five fiscal years.
Other Medicaid related legislation that died this session includes:
EXPANSION: The Alabama Hospital Association has said it will continue to push for expansion of Alabama’s Medicaid program. SB182 by Sen. Billy Beasley, D-Clayton, which would have expanded Medicaid, never even received committee consideration.
TAX INCREASE FOR MEDICAID: A constitutional amendment (SB136 by Sen. Vivian Figures, D-Mobile) that would have raised property taxes by 5 mills statewide, with the proceeds going to Medicaid, received committee approval but never was debated on the floor.
Law Preempts Local
Minimum Wage / Mandated Benefits
Legislation that voided Birmingham’s $10.10 minimum wage and preempted other Alabama localities from creating a local minimum wage and mandating other benefits passed early in the session. Act No. 2016-18 by Rep. David Faulkner and Sen. Greg Reed, R-Jasper, makes Alabama one of 20 states with a minimum wage or paid leave preemption law. The Alabama Uniform Minimum Wage and Right-to-Work Act prohibits local governments from requiring minimum wages, paid or unpaid leave, vacation time or work schedules. The new law requires a uniform minimum wage, based on state or federal law. It does not create or set a state minimum wage. Alabama is one of 21 states that use $7.25, the federal minimum, as the lowest possible wage employers can pay employees. In late April, a lawsuit was filed in U.S. District Court in Birmingham challenging the wage and benefit preemption law as racially motivated and in violation of the Equal Protection clause of the U.S. Constitution. The state’s attorney general plans to defend the law.
If Alabama voters agree in November, the state could become the 11th in the nation to include its right-to-work law as a part of its constitution. Act No. 2016-86 by Rep. Arnold Mooney, R-Birmingham, and Sen. Gerald Dial, R-Lineville, would make the state’s 1953 right-to-work law part of the state’s constitution.
Legislature Begins For-Profit Audit Reform
The Alabama Legislature, at the insistence of Alabama retailers and others, took a first step this session toward reining in abuses by unregulated, for-profit tax auditing and collecting firms. On Friday, May 13, the governor signed into law Act No. 2016-406 by Sen. Paul Sanford, R-Huntsville and Rep. Paul Lee, R-Dothan. It is effective Jan. 1, 2017.
“We may need to look at a regulatory board or commission to oversee this industry down the road,” said Alabama Retail President Rick Brown. “An aggrieved taxpayer needs someone to call who has the authority to make this industry do what is right.”
While the original legislation would have totally abolished third-party auditors, what passed after extensive negotiations and compromise, does require for-profit auditors to present a signed and dated contract upon entering a business and a local government official to sign off on any final assessment or forced collection.
Alabama Retail plans to strengthen this law in the future and would be interested in any experiences you could relate about how for-profit auditors have mistreated or caused your business harm. Here are two stories that we shared with lawmakers this session:
State law forbids for-profit auditing firms from collecting or assessing on a contingency basis. Cities and counties instead pay the outside auditors on an hourly basis.
Law Expands Voluntary Remittance by Remote Sellers
Eligible remote sellers under specific parameters can continue to participate in the state’s voluntary sales tax collection program (2015 Simplified Seller Use Tax Remittance Act), even if the seller later establishes a physical presence in Alabama, under Act No. 2016-110 by Sen. Trip Pittman, R-Daphne, and Rep. Rod Scott, D-Fairfield. According to the Alabama Revenue Department, $996,936.61 in voluntary collections have been remitted by 39 businesses since the original 2015 law became effective. On Jan. 1, the Revenue Department, through a rule, began requiring remote sellers with more than $250,000 in retail sales of tangible personal property into Alabama to collect sales tax on transactions with Alabama customers. The rule allows those sellers to utilize the simplified, flat 8-percent sales tax established by the 2015 law. Once the Jan. 1 rule went into effect, the number of companies voluntarily remitting increased. A similar South Dakota law that requires out-of-state retailers to collect sales tax if they generate more than $100,000 in sales or complete 200 remote transactions involving South Dakota residents each year faces a state court challenge. Alabama’s rule has yet to be challenged in court. It may take a U.S. Supreme Court challenge to existing precedence to level the playing field in regard to sales tax collections for all retailers.
Alabama’s state income tax return due dates now align with due dates for federal returns. Without Act No. 2016-412 by Sen. Quinton T. Ross Jr., D-Montgomery and Rep. Anthony Daniels, D-Huntsville, next year 143,000 Alabama businesses would have had to file their tax returns a month early or file for an extension. The Alabama Retail Association helped shephard this bill through the legislative process on the final day of the session. This change reflects the recent change made for federal return deadlines. Read more on federal income tax due date changes.
Starting Oct. 1, county commissions must hire outside legal counsel for both the state and counties when property tax assessments are appealed to a circuit court, under Act No. 2016-127 by Sen. Phil Williams, R-Rainbow City, and Rep. Paul Lee, R-Dothan. Williams said outside counsel is necessary for both the state and counties to combat the “dark store” method of valuing property for taxing purposes. Under dark store, property tax valuation is not based on the cost to construct a store, but on the cost to sell an empty store built for a specific retailer. One retailer has filed more than 20 lawsuits in Alabama challenging property values based on the dark store method, according to the Alabama Department of Revenue.
Small Business and Apprentice Tax Credits Pass
Two new tax credits are will soon be available to Alabama businesses.
SMALL BUSINESS TAX CREDIT: Effective July 25, Alabama businesses with 75 or fewer employees can claim a one-time, $1,500 income tax credit for each full-time, Alabama resident employee hired for a new position that pays $40,000 or more annually, under Act No. 2016-188 by Rep. Kyle South, R-Fayette.
APPRENTICE CREDIT: Beginning with the 2017 tax year, employers can claim a $1,000 income tax credit for each of up to five qualified apprentices employed, under Act No. 2016-314 by Sen. Arthur Orr, R-Decatur and Rep. Ken Johnson, R-Moulton.
Only AG and DAs Can Bring
a Deceptive Trade Class Action
State law will now make it clear only the attorney general or a district attorney can file a class action under the Alabama Deceptive Trade Practices Act. A 2015 ruling by the 11th U.S. Circuit Court of Appeals considered the class-action provision of the Alabama law as “procedural and not substantive.” Act No. 2016-407 by Sen. Phil Williams, R-Rainbow City, makes it clear that “this law is substantive.” It is effective Aug. 1.
Alabama’s Limited Partnership law has been modified to reflect current case law. Act No. 2016-379 by Rep. Bill Poole, R-Tuscaloosa, and Sen. Cam Ward, R-Alabaster, also brings the state’s LP law in conformity with its LLC law.
As of Aug. 1, the Alabama Department of Labor can file an action to collect civil penalties against an employer for child labor law violations in the circuit court of the county where the violation occurred, under Act No. 2016-417 by Sen. Steve Livingston, R-Scottsboro.
The Alabama Board of Pharmacy and its members have liability immunity for adopting pharmacy rules that prioritize “patient safety and wellness but may be anti-competitive” under Act No. 2016-410 by Sen. Billy Beasley, D-Clayton and Rep. Ron Johnson, R-Sylacauga.
Alcohol Makers Can Now Retail
Their Own Products in Limited Way
Legislation recommended by the Alabama Alcoholic Beverage Study Commission allows greater retail opportunities for breweries/brewpubs, distilleries and wineries:
- Starting June 1, Alabama brewers and brewpubs producing less than 60,000 barrels of beer annually will be able to sell up to 288 ounces of beer per day to a customer for off-premise consumption under Act No. 2016-97 by Rep. Anthony Daniels, D-Huntsville, and Sen. Bill Holtzclaw, R-Madison.
- Starting July 1, distilleries can sell a standard-size bottle (up to 750 milliliters) per customer, per day from its premises for off-premise consumption only under Act No. 2016-130 by Sen. Bobby Singleton, D-Greensboro and Rep. Alan Boothe, R-Troy.
- Starting July 1, a licensed winery that produces less than 50,000 gallons of table wine annually can operate one additional tasting room outside its on-site tasting room from which it can sell one case of wine, per customer, per day under Act No. 2016-131 by Sen. Linda Coleman-Madison, D-Birmingham, along with David Faulkner, R-Birmingham, and Alan Harper, R-Aliceville.
Starting Oct. 1, licensed distilleries and wineries can conduct liquor and wine tastings, at no charge to consumers, in retail stores licensed for off-premise consumption as well as state liquor stores under Act No. 2016-111 by Sen. Billy Beasley, D-Clayton, and Rep. Becky Nordgren, R-Gadsden.
The cities and towns of Glencoe, Hokes Bluff, Kellyton, Rainbow City, and Cedar Bluff (on-premise only) were authorized to ask voters if they would like to allow Sunday sales. Tallapoosa County voters in any of that county’s municipalities and well as county voters in the unincorporated areas also will get a chance to vote on Sunday alcohol sales.
Act No. 2016-349 by Rep. Lynn Greer, R-Rogersville, allows voters in the town of Lexington to decide if they want both on- and off-premise, six-day alcohol and draft beer sales in that Lauderdale County town. Greer has said the election would likely be in August. He sponsored the bill at the request of town leadership who said alcohol sales would open up a new revenue opportunity.
Tax Law Remains Same
for Digital Goods, Electronic Transfers
Two bills related to taxes on goods conveyed by modern technology were considered but did not prevail.
One — SB242 by Sen. Trip Pittman, R-Daphne — would have made “digital goods” in Alabama subject to sales or use tax.
The other (HB349 by Rep. Ed Henry, R-Hartselle / SB345 by Sen. Bobby Singleton, D-Greensboro) would have exempted electronically transferred products from rental, sales and use taxes as long as those products weren’t for permanent use and involve continued payment by the purchaser. The bill included video programming services (such as streaming) — subscription services, video-on-demand television services and broadcasting services — in the definition of “product transferred electronically.”
Unitary Combined Reporting Goes Nowhere
The Alabama Retail Association and the Business Associations’ Tax Coalition, a coalition of the major business groups in the state continued their opposition to combined reporting in this legislation session. The Senate Finance and Taxation Education Committee never even considered SB202 by Sen. Linda Coleman-Madison, D-Birmingham.
Several solutions for removing the sales tax on food were offered this year, but none received committee consideration:
- HB306 by Rep. John Knight Jr., D-Montgomery, would have removed the state portion of the tax from food, but did not contain any revenue-raising proposals.
- HB307 also by Knight, was a constitutional amendment, that would have removed the state sales and use taxes from food and over-the-counter drugs, while disallowing the deduction of federal income taxes by individual tax payers subject to state income tax.
- By Sept. 1, 2017, SB272 by Sen. Gerald Dial, R-Lineville, would have reduced sales tax on food as defined by the federal Supplemental Nutrition Assistance Program (SNAP) to zero while increasing the state sales tax on other items to 5 percent.
Alabama’s Minimum Wage
Remains Same as Federal Minimum
Both statewide and local state minimum wage bills failed to get committee approval this year.
Two bills by Rep. Darrio Melton, D-Selma, would have created a state minimum wage, one in three steps (HB70) and the other with an automatic increase built in each year based on the percentage increase in the Consumer Price Index in the previous calendar year (HB71).
SB185 by Sen. Linda Coleman-Madison, D-Birmingham, a constitutional amendment to create a state minimum wage in three steps also failed to be considered.
Attempt to ‘Ban the Box’ Fails
“Ban-the-box” legislation was attempted, but the issue never made it to the floor of either chamber. The Senate version originally would have kept private employers from asking about a job applicants’ criminal background until after the applicant had received a conditional job offer. The Senate Judiciary Committee revised SB327 by Sen. Quinton Ross, D-Montgomery, so that it only applied to state employment and licensing agencies. The House companion was HB412 by Rep. Juandalynn Givan, D-Birmingham.
HB150 by Rep. Laura Hall, D-Huntsville, would have created an Equal Pay Commission to study wage disparities and report its findings and recommendations to the Alabama Legislature. It never received committee approval.
Pseudoephedrine Remains Over the Counter
HB298 by Rep. Ed Henry, R-Hartselle, would have required the State Board of Health to classify ephedrine, pseudoephedrine and phenylpropanolamine as controlled substances and thus making those substance only available by presciption. The bill never received committee consideration. Alabama Retail continues to oppose mandating prescription-only status for the widely used nasal decongestants.
Committees never acted on SB299 by Sen. Billy Beasley, D-Clayton / HB304 by Rep. Elaine Beech, D-Chatom, which would have required the Alabama Pharmacy Board to “adopt rules concerning the training of pharmacy technicians.”
Ban of Adjustable Focus Eyewear Averted
Legislation that would have halted the sale of adjustable focus eyewear in Alabama died when the House did not get to it on the next to last legislative day. SB245 by Sen. Jim McClendon, R-Springville, and HB336 by Rep. April Weaver, R-Brierfield, would have set lens requirements for over-the-counter eyewear that would preclude the sale of glasses with an adjustable magnification, a technology being marketed worldwide by Adlens.
District Court Jurisdiction Remains Same
HB151 by Rep. David Faulkner, R-Birmingham, would have increased district courts’ jurisdiction from all cases involving $10,000 or less in controversy to all cases of $15,000 or less. Circuit courts would then have jurisdiction in matters exceeding $15,000. While the bill was ready for final consideration in the Senate, the Senate never considered it.
State Store System Remains Intact
The Alcohol Beverage Reform Task Force, which this summer and fall studied the possibility of privatizing state liquor sales, made no recommendations to the Legislature. Even so, SB292 by Sen. Arthur Orr, R-Decatur, sought to phase out retail alcohol sales at the Alabama Alcoholic Beverage Control Board’s 176 state stores by Oct. 1, 2021. The full Senate never considered the bill.
The full House never considered HB219 by Rep. Ken Johnson, R-Moulton, which would have lengthened the time between wet/dry referendums from 720 days to 1,440 days.
Gasoline Tax to Resurface in 2017
Two bills (HB394 and HB560) by Rep. Mac McCutcheon, R-Huntsville, would have raised gasoline and diesel fuel taxes in Alabama to fund road and bridge improvements, but the bills ran out of time. The legislation supported by the Alliance for Alabama’s Infrastructure will resurface as Alabama’s roads and bridges continue to deteriorate. The American Society of Civil Engineers rates nearly half the highways in our state as fair, poor or very poor in the ASCE 2015 Report Card for Alabama’s Infrastructure. The Legislature last raised the gasoline tax in 1992.
Some limited business license reform was attempted this session with one industry achieving legislative approval, only to have the governor pocket veto the legislation, and another advancing its cause all the way to the end, only to see it dropped on the final two days. Both bills, similar legislation and legislation with even broader implications could be back in 2017.
Home Health / Equipment Industry Business License
Limit Touted as Worthy of Broader Application
Qualified home health care or hospice agencies or providers of durable medical equipment, prosthetics, orthotics or health care supplies would have only had to get a city business license in a municipality, if its headquarters or branch office was in that municipality or it had $75,000 or more in annual gross receipts within that city, under SB306 by Sen. Cam Ward, R-Alabaster. The bill passed both chambers and was forwarded to the governor at the absolute last minute of the final legislative day, only to have the governor pocket veto it after the session.
During the debate on Ward’s bill, Sen. Paul Sanford, R-Huntsville, said the legislation “was not broad enough” and needed to be applied to other businesses. “Other legislation will be spawned out of this,” he vowed.
Pharmacies Fail to Gain Business License Reduction
Pharmacies would have been allowed to remove prescription drug sales from their gross receipts when calculating the cost of their business license under HB58 by Rep. Ron Johnson, R-Sylacauga / SB329 by Sen. Billy Beasley, D-Clayton. The Senate bill came up for final approval on the next-to-last and last day of the session only to be stopped by President Pro Tem Del Marsh, R-Anniston, who said it would cause Anniston to lose revenue the city had already budgeted.
The Alabama Retail Association supports simplification of business and delivery licenses in Alabama.
Legislation that would have made Alabama the 48th state to provide consumers with timely notification of data breaches passed the Senate but was never considered by the House. Sen. Arthur Orr, R-Decatur, the sponsor of SB238, has said he will seek input to bring similar legislation back next session. Alabama remains one of three states without a law. The other two are New Mexico and South Dakota.
The full House never considered HB115 by Rep. Ron Johnson, R-Sylacauga, which would have required tobacco, beer and wine wholesalers/distributors, as well as wholesale or warehouse clubs that sell those products, to inform the Alabama Department of Revenue of how much they sold and to what retailers or other resellers they sold it. It would have required tobacco manufacturers, wholesalers or distributors that sell more than $300,000 annually to Alabama retailers as well as every beer and wine distributor to provide information regarding sales made within Alabama for resale purposes to the Revenue Department. The original bill also included grocery wholesalers in the reporting requirement. After the Alabama Retail Association expressed concern about that provision, the sponsor removed it. The Alabama Revenue Department supports the legislation as a way to “target those who are out of compliance” by comparing taxes remitted to the “wholesale record.”
NEXT LEGISLATIVE DAY
The Alabama Senate and House of Representatives will convene at noon Tuesday, Feb. 7, for the 2017 regular session. The governor may call the Legislature back into special session before that time.
Release of Overtime Rule Imminent;
Possibly as Early as This Week
As soon as Friday, but probably not until May 16, the U.S. Department of Labor is expected to release its long-anticipated overtime rule for exempt employees. Last September, the department proposed increasing the Fair Labor Standards Act’s minimum weekly salary rate for exempt employees to $970 a week, or $50,440 annually, more than doubling the current $455 per week minimum ($23,660 annually).
Several reports say the Obama administration is poised to lower the salary threshold in the final rule from $50,440 a year to $47,000 for salaried workers ($904 per week). Even so, the minimum would still be almost double the salary test that determines whether an employee is eligible for overtime.
Once the rule is issued, employers will have at least 60 days to comply.
For timing reasons under the Congressional Review Act, the new rule probably will be issued on or before May 16. If that occurs, then any attempt by Congress to block the rule could be vetoed by President Obama before he leaves office.
Employer options for dealing with the new rule include raising salaries to maintain employees’ exempt status, converting affected exempt employees to hourly or salaried non-exempt status, limiting permissible overtime work, or cutting base salaries to offset anticipated overtime costs.
Within two weeks after the final rule is issued, the Alabama Retail Association and its employment law partner, Lehr Middlebrooks Vreeland & Thompson, will provide a free webinar for Alabama Retail Association members on how to implement the rule.
If you are a self-insured employer or applicable large employer, deadlines to file information returns related to the Affordable Care Act with the Internal Revenue Service are approaching at the end of this month or the end of June, depending on how the information is provided.
A Form 1095-C (on each employee) is due to the IRS by May 31 (June 30 if filed electronically) for all applicable large employers, or ALEs. ALEs are employers with 50 or more full-time equivalents. For companies that are fully insured, Blue Cross Blue Shield of Alabama should assist with preparing the forms. However, self-insured companies must bear the burden themselves.
Those NOT subject to the employer mandate who sponsor self-insured plans should have supplied employees with a 1095-B form by the end of March in order to report minimal essential coverage. The Form 1095-Bs are due to the IRS by May 31 for 2015 returns OR June 30, if filed electronically.
At the request of the Alabama Retail Association, Jamie M. Brabston, senior counsel with Lehr Middlebrooks Vreeland & Thompson, P.C., has prepared explanations of key terminology and processes related to the Affordable Care Act to make the law more understandable for retailers.
On May 5, the U.S. Food and Drug Administration finalized a rule extending its authority to all tobacco products, including e-cigarettes, personal vaporizers, electronic pipes, cigars, hookah tobacco and pipe tobacco, among others.
Before the rule, there was no federal law prohibiting retailers from selling e-cigarettes, hookah tobacco or cigars to people under age 18. As of Aug. 8, nationwide those products:
- Cannot be sold to persons under the age of 18 years (both in person and online);
- Require age verification by photo ID;
- Cannot be sold in vending machines (unless in an adult-only facility); and
- Distribution of free samples is not allowed.
Alabama has had a law banning the sale of e-cigarettes to minors since 2013. Only two states did not have an e-cigarette ban for minors.