Friday, March 14, 2014
Governor Signs Independent Tax Appeals into Law; Ceremonial Signing Set for Next Week
Legislation to centralize Alabama’s tax appeal process and make that process independent of taxing authorities is now law (Act. No. 2014-46). Gov. Robert Bentley signed the Taxpayer Fairness Act by Rep. Paul DeMarco, R-Homewood, and Sen. Bryan Taylor, R-Prattville, into law Monday.
The governor has set a ceremonial signing for next Wednesday. The newly created Alabama Tax Tribunal, consisting of at least one, but no more than three judges, is to be in place by Oct. 1. The chief judge is to be appointed by July 1. For the first time, taxpayers will be able to appeal most assessments issued by localities or their contract auditing firms to the new state tribunal, rather than a judge who works for a division of the Alabama Department of Revenue. The Business Associations’ Tax Coalition (BATC), a coalition of 27 business trade associations, chaired by Alabama Retail Association President Rick Brown, has advocated for an independent tax appeals process for years. BATC and Alabama Retail thank the sponsors, lawmakers and the governor for making this long-time goal a reality. The new law:
- Allows taxpayers to appeal final assessments of sales, use, rental, and lodgings taxes issued by self-administered cities and counties (and their private auditing firms) to the tribunal, unless the governing body of the city or county opts out. This provision works hand-in-hand with the Optional Network Election for Single Point Online Transactions, or ONE SPOT, e-filing program for local sales, use, and rental taxes.
- Starts the 30-day time period for filing appeals of preliminary or final assessments at the date of the actual mailing to the taxpayer, or date of personal service, whichever occurred earlier. The current appeals clock starts at the date of entry.
- Broadens the “innocent spouse” relief for paying tax, interest and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return, which is consistent with federal changes. A bill passed in 2012 only partially conformed to the pro-taxpayer federal changes.
- Increases the power of the Taxpayer Advocate, allowing the advocate to correct a final order issued by the tribunal if newly discovered evidence shows a taxpayer was incorrectly assessed.
- Makes no increases to existing penalties.
SIGNED INTO LAW
State Has New Limited Liability Law
As of Jan. 1, Alabama will have a new law governing limited liability companies. Act. No. 2014-144 will mean “more Alabama businesses will create their LLCs in Alabama,” the legislation’s House sponsor, Rep. Paul DeMarco, R-Homewood, said. Sen. Rodger M. Smitherman, D-Birmingham, was the Senate sponsor. The governor signed the legislation into law Monday. It has an effective date of Jan. 1, 2015. The Uniform Alabama Limited Liability Company Law, drawn up by the Alabama Law Institute, focuses on the contractual nature of LLCs. Under the new law, the implied contractual covenant of good faith and fair dealing cannot be eliminated. It also acknowledges that LLCs don’t necessarily have to be for-profit businesses.
Alabama’s Cork-and-Go Law Aligns with Federal Law
Restaurant patrons who don’t finish their wine now must transport their recorked or resealed bottles where the vehicle’s driver can’t reach it. Act No. 2014-164, which the governor signed Thursday morning, specifies that the unfinished bottle must be placed in a locked trunk; in a storage or luggage compartment; in a locked glove compartment; in a storage or cargo compartment in the bed of a pickup truck or in a locked case not readily accessible behind the front seat of a pickup truck; or in the area behind the last upright seat of any vehicle that does not have a trunk. Sen. Paul Sanford, R-Huntsville, and Rep. Terri Collins, R-Decatur, sponsored the rewrite of a 2012 law that they also sponsored, which allows Alabama restaurant patrons to put the cork back in an unfinished bottle of wine and take it home. The new law reflects federal standards so Alabama can continue to receive federal transportation money.
Law Bans Labeling Non-Recyclable Plastics
as Compostable or Biodegradable
Another bill signed into law requires biodegradable plastic containers by July 1, 2015, to meet standards for compostable products and to be clearly labeled to prevent contamination of recyclable plastic containers. Act. No. 2014-135 by Sen. Jimmy Holley, R-Elba, and Rep. Alan Boothe, R-Troy, prohibits plastic containers that don’t meet U.S. Federal Trade Commission guidelines for environmental marketing claims from being labeled as degradable, biodegradable or compostable unless those containers also are labeled in the same “color, contrast, font and size” as “Not Recyclable, Do Not Recycle.”
TAXES AND FEES
Panel Votes to Raise Debtors’ Homestead Exemption
On a vote of 7-0 Wednesday, the Senate Finance and Taxation General Fund Committee adopted and approved a substitute version of SB427 by Sen. Cam Ward, R-Alabaster, which would allow Alabamians to shield more of their home’s value from creditors. It raises the homestead exemption to $30,000. Current law sets that exemption at $5,000 for individuals and $10,000 for couples. The substitute removes references and details for wage garnishment and the assessment adjustments based on Federal Consumer Price Index, leaving the bill as a straight homestead exemption increase. The original bill also would have increased debtors’ state exemptions for personal property from $3,500 to $10,000, but the committee removed those provisions.
The homestead exemption, which protects home equity during bankruptcy, was last raised in 1982, Ward told senators, adding that it is “long past time for us to increase the homestead exemption.”
Under this legislation, debtors filing for bankruptcy also will have the option of exempting homestead and personal property in accordance with federal bankruptcy law. The bill now moves to the full Senate for consideration.
Committee Carries Over Factor Presence Nexus Bill
The Alabama House Ways and Means Education Committee carried over legislation to establish a factor presence nexus standard for business activity for income tax purposes. Under HB548, out-of-state businesses doing business in Alabama would be considered to have “substantial nexus” and subject to Alabama income tax, if their business activity in Alabama surpassed any of the following thresholds:
- $50,000 of property
- $50,000 of payroll
- $500,000 of sales
- 25 percent of total property, total payroll and total sales
Those amounts coincide with a model statute developed in 2002 by the Multistate Tax Commission. Fewer than 10 states and no Southern states, however, have adopted a factor presence nexus standard. Federal legislation has been proposed to make it clear when nexus occurs. The Business Activity Tax Simplification Act, H.R. 2992, seeks to create a predictable standard for nexus-causing activity in interstate commerce. The U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law heard testimony on the federal legislation Feb. 26, but no vote has been taken.
Bill Clarifying Sales Tax Due
on Prepaid Wireless Service Heads to Senate
The Senate Finance and Taxation Education Committee on Thursday approved HB373 by Rep. Bill Poole, R-Tuscaloosa, which modernizes sales tax law related to prepaid wireless services. Under existing law, prepaid calling cards and prepaid authorization numbers are deemed tangible property and thus subject to sales tax. A June 2013 decision by Alabama’s chief administrative law judge, Bill Thompson, however, pointed out there was no definition of prepaid telephone services in state law and ruled prepaid services loaded on countertop terminals were not subject to sales tax because that method of purchase was not anticipated by current law. The administrative law decision “put the sales tax in jeopardy,” Poole said.
This legislation makes it clear that even in the absence of a physical card, such as the countertop terminal example, sales tax is owed on prepaid wireless services. The bill also adds definitions that update the law to today’s technology to include other digital products and content that are paid for in advance and sold in predetermined amounts that the consumer can use until the amount is consumed.
House Agrees to Sales Tax Exemption
for Art Sold in Cultural Districts
On a vote of 98-0 Tuesday, the Alabama House approved HB52 by Rep. Terri Collins, R-Decatur, which would exempt original art works from sales tax if sold within a cultural district in Alabama’s larger cities that either have an incorporated arts council or a Main Street program. The bill authorizes the Alabama Council on the Arts to develop guidelines for the establishment of cultural districts. The tax-free status would apply to original works with a price tag of $10,000 or less. The bill requires each local government with a certified cultural district to submit an annual report on the cultural and economic development resulting from the district to the Revenue and Tourism departments. The bill next will be heard by a Senate committee.
Senate Panel OKs Bill Allowing Revenue Dept.
to Suspend Administratively Costly Taxes
The Senate Finance and Taxation Education Committee on Thursday approved HB97 by Rep. Jim Patterson, R-Meridianville, which would require the Revenue Department, by administrative rule, to suspend the collection of a tax or fee when the administrative costs of collecting exceeds the collection amount for each of the previous three fiscal years. The Alabama House approved the House Republican Caucus Legislative Agenda bill Jan. 16 on a vote of 96-0. The House agreed with a House State Government Committee amendment to require that before suspending a tax the department must notify any locality that would lose revenue as a result. The amendment also requires that no tax or fee be due if a rule suspending a tax is repealed. Alabama’s tax on playing cards is one that costs more to administer than the amount the state receives in tax revenue. Patterson said the playing card tax generates $86,138 and costs more than $100,000 to collect, including the cost of placing tax stamps on the cards in the various warehouses throughout the state.
The suspension would not apply to taxes or fees that the ADOR is required by federal law to collect; if the suspension would result in reduced federal funding that is greater than the state’s costs of collection; if the suspension would result in reduced local funding that is greater than the state’s costs of collection; or if the suspension would “negatively affect the public health, safety, or welfare.”
Taxpayer Audit Protection Heads to Senate
The Senate Finance and Taxation Education Committee on Thursday amended and approved HB42 by Rep. Wayne Johnson, R-Ryland, which seeks to prevent the Alabama Revenue Department, county and municipal governments and third-party tax administrators from ever targeting certain groups or organizations for audits based on their political views or messages. The bill now goes to the full Senate. If approved there, it will have to go back to the House for concurrence. The Alabama House approved the bill Jan. 21 on a 74-22 vote.
Under the Alabama Taxpayer Audit Protection Act, an employee of the Revenue Department, locality or third-party tax administrator could be subject to a summons, complaint, dismissal or other disciplinary action if he/she:
- makes false statements about or withholds relevant information concerning a taxpayer audit;
- threatens to audit a taxpayer for personal gain;
- violates tax laws to retaliate against a taxpayer;
- or destroys records to conceal a mistake.
The committee amended the bill to clarify that selecting a taxpayer for an audit using accepted audit principles is not retaliation and neither is asking for documents in the course of an ongoing audit. The amendment places the burden on the taxpayer to show there is an improper basis for the audit.
Gun Sales Tax Holiday Heads to House
The House Public Safety and Homeland Security Committee on Wednesday amended and approved HB559 by Rep. Becky Nordgen, R-Gadsden, which would create a sales tax holiday for guns, ammunition and firearms supplies. The bill proposes the firearm sales tax holiday for the Friday through Sunday prior to July 4 each year with no limits on the amount of purchases. The committee amendment dubs the legislation the “Remington Appreciation Sales Tax Holiday.” Remington, America’s oldest gun maker, plans to open a $110 million firearms plant in Huntsville that eventually will employ almost 2,000. Louisiana is the only state with a sales tax holiday for firearms. The Louisiana holiday, which is geared to hunters, has been held in early September each year since 2009.
Senate Panel OKs Tax-Free Medical Equipment Rental
The Senate Health Committee on Wednesday unanimously approved HB280 by Rep. Ron Johnson, R-Sylacauga, which would make the rental or leasing of durable, prescribed medical equipment, prosthetics and orthotics devices, and medical supplies billed to Medicare, Medicaid, or a health benefit plan, exempt from all sales, use and rental taxes. It would have an effective date of Aug. 1. The Alabama House approved the bill on a vote of 86-0 Thursday, March 6. The bill now goes to the full Senate for final approval.
Knight Proposes Giving Up Food Sales Tax for Lent
Rep. John F. Knight Jr., D-Montgomery, this week introduced legislation that would exempt food from the state sales and use tax during the season of Lent. Additionally, HB596 would allow any county or municipality to offer the same exemption during the Lenten season. The exemption period would begin at 12:01 a.m. on the first day of Lent and end at 11:59 on the last day. Lent lasts for 40 days. The bill uses the definition of food used by the federal Supplemental Nutrition Assistance Program. The bill has been assigned to the House Ways and Means Education Committee.
EMPLOYMENT
State and Federal Governments
Conduct Hearings on Raising the Minimum Wage
The House Commerce and Small Business Committee on Wednesday conducted a public hearing to a packed room but took no vote on HB279 by Rep. Darrio Melton, D-Selma, which would amend the constitution to create an hourly minimum wage of $9.80 by Jan. 1, 2016. The bill would start the state minimum wage at $7.25 an hour and increase it by 85-cents-per-hour on Jan. 1, 2015, July 1, 2015 and Jan. 1, 2016, taking the minimum to $9.80 an hour. Alabama has no state minimum wage and instead follows the federal minimum, which is currently $7.25 an hour. Only six days remain in the legislative session, which barely leaves time for the bill to move through the process.
Under the state legislation, wages paid to employees who also receive tips would have to be at least 30 percent of the federal or state minimum wage, assuming the employee made at least 70 percent of the minimum wage in tips. The employer would have to pay the difference if wages and tips don’t equal the minimum wage. Starting in 2020, Melton’s bill calls for automatic cost-of-living adjustments based on the Consumer Price Index every three years.
Meanwhile, the U.S. Senate Health, Education, Labor and Pensions Committee held a public hearing Wednesday on a proposal to raise the federal minimum wage.
The federal Fair Minimum Wage Act of 2013 (H.R. 1010; S. 460), would raise the minimum federal hourly rate from $7.25 to $10.10 in $.95 increments over a three-year period and then index the rate to inflation. The legislation also would increase the hourly wage rate for tipped workers from $2.13 to $3.00 during the first year, and then increase this base amount by either $.95 or an amount necessary to raise the rate to 70 percent of the minimum wage, whichever is less. The director of the Congressional Budget Office estimates a loss of 500,000 jobs nationwide by the second half of 2016 should the federal legislation become law.
>> Link to the list of the witnesses and their testimony on the federal minimum wage legislation
LEGAL
Small Claims Increase Heads to House
The House Financial Services Committee on Thursday approved legislation that doubles the amount of claims that can be settled in small claims court. SB170 by Sens. Jerry Fielding, R-Sylacauga, and Del Marsh, R-Anniston, now goes to the full House for final consideration.
The bill increases the jurisdiction of the small claims division of Alabama’s district courts to cover all cases in which the amount in controversy is $6,000 or less. Filing fees would remain the same. District courts currently have jurisdiction over cases involving $10,000 or less, while the small claims division oversees controversies involving $3,000 or less. The Alabama Senate unanimously approved the bill March 6.
House Sends Anti-Patent Trolling Bill Back to Senate
Thursday, the House unanimously approved SB121 by Sen. Arthur Orr, R-Decatur, which seeks to combat patent trolling, or asserting a claim of patent infringement in bad faith. Patent trolls initially targeted conventional technology companies, but now are suing brick-and-mortar businesses such as restaurants, supermarkets and hotels. A patent troll does not produce or sell any products or administer services. The entity is created specifically and solely to generate a revenue stream from patents, preferably through entering into licensing agreements, but also through litigation. This proposed state legislation doesn’t restrict the filing of legitimate patent infringement claims.
The Alabama Retail Association is part of the Main Street Patent Coalition, which seeks to stop frivolous lawsuits filed by patent trolls, or patent-assertion entities. The Alabama Grocers Association, Alabama Restaurant Association, and the Business Council of Alabama among others in our state also are part of this coalition.
BAD CHECKS
House Votes to Extend Bad Check Law to Electronic Versions
The Alabama House on Thursday unanimously approved HB450 by Rep. Mike Hill, R-Columbiana, which would make electronic drafts negotiable instruments.
Under this legislation, electronic drafts are considered negotiable solely as it relates to the state’s law governing negotiating a worthless instrument. Under existing law, a person commits the crime of negotiating a worthless negotiable instrument if he or she presents a check or promissory note as payment, knowing or intending that it will not be honored by the drawee. The legislation extends that crime to electronic drafts made in bad faith. It also extends the same punishment and other related legal matters to bad electronic drafts. The bill now goes to a Senate committee for consideration.
The Alabama Senate on a vote of 28-1 March 6 approved the Senate companion, SB339 by Sen. Scott Beason, R-Gardendale. It is ready for consideration by the full Senate.
TOBACCO
House Health Defeats Statewide Smoking Ban
Legislation proposing a statewide smoking ban died Wednesday in the House Health Committee. On a vote of 4-7 vote, the committee defeated SB168 by Sen. Vivian Figures, D-Mobile, which would have banned smoking statewide in any workplace, public building or public place with exemptions for bars, cigar bars, private clubs, retail tobacco stores and certain outdoor areas. Under the bill, inhaling electronic cigarette vapor would not have been considered smoking.
As has happened in the past, the proposed ban died in the House. The Alabama Senate had approved the statewide smoking ban on a 21-8 vote Feb. 11. This is the 16th straight year Figures’ has introduced this legislation.
MEDICAID
Senate Panel OKs Revisions to Medicaid Delivery System
The Senate Health Committee on Tuesday unanimously approved SB459 by Sen. Greg Reed, R-Jasper, which revises the membership of and eligibility requirements for the governing boards for regional care organizations, which the Legislature adopted last year to deliver Medicaid services. Two physicians to the board would be appointed by the Medical Association of Alabama, rather than the county boards of health in the region, under the bill. The bill further provides the majority of the board may not represent a single provider, rather than a single type provider as originally enacted. However, if only one entity steps forward to be the risk-bearing participant the single provider prohibition will not apply, according to the bill.
The legislation also allows Medicaid to set a minimum reimbursement rate for providers based on the prevailing Medicaid fee-for-service payment schedule. The methodology for setting the rates would be subject to approval by the Centers for Medicare and Medicaid Services.
Meanwhile, comments on the agency’s proposed Section 1115 Demonstration Waiver, which would allow the state to move forward with the new delivery system, will be collected at a 10 a.m. Tuesday, March 18, public hearing at the Birmingham Botanical Gardens (2612 Lane Park Road, Birmingham, AL 35223). All comments related to that waiver are due by April 4 to PublicComment@medicaid.alabama.gov
Under the current law, by Oct. 1, 2016, health care delivery and risks for Alabama’s Medicaid recipients will fully shift from the agency’s current fee-for-service model to regional care organizations under a per-person, or capitated, model. The new delivery networks are to be in place by April 1, 2015.
>> More information on regional care organizations
ALCOHOL
Referendum Next Step Toward Goodwater Sunday Sales
Voters in the city of Goodwater in Coosa County can now vote on whether they want alcoholic beverages to be sold in their city between 1 and 9:30 p.m. Sundays. Thursday, Gov. Robert Bentley signed Act. No. 2014-159 by Sen. Jerry Fielding, D-Sylacauga.
On a vote of 91-0 Thursday, the House approved HB459 by Rep. Alan Boothe, R-Troy, which defines draft or keg beer as beer packaged and distributed in a keg by the manufacturer. Bottled beer labeled as draft beer would not fall under that definition. The House Economic Development and Tourism Committee approved the bill Feb. 19. It now goes to a Senate Committee for consideration.
Ban on EBT Use for Alcohol, Tobacco
and Other ‘Sin’ Products Goes to Senate
The House State Government Committee on Wednesday approved SB116 by Sen. Arthur Orr, R-Decatur, which prohibits those on welfare from using public benefits to buy alcoholic beverages, tobacco products or lottery tickets. The bill further prohibits those receiving public benefits from using those benefits in a bar, casino, tattoo facility, for psychic services or adult entertainment. Orr said contractors for card machines in liquor stores, bars, tattoo parlors, strip clubs and casinos will have to reconfigure the machines so they do not accept EBT cards. The bill now goes to the full Senate
At the request of the Alabama Retail Association, the bill no longer includes prohibitions and penalties against businesses. The bill leaves the prohibition against and consequences for using public benefits to purchase the banned products with the benefit recipient. “We didn’t want the retailer to be the policeman,” said Orr told senators.
Wine Supplier/Wholesaler Relationship Bill
for Montgomery County Ready for Final OK
The House Montgomery County Legislation Committee on Wednesday approved SB351, or the Montgomery County Wine Franchise Jobs Protection Act, by Sen. Dick Brewbaker, R-Montgomery. The legislation requires suppliers to designate in writing exclusive sales territories for wine wholesalers in the county. It also forbids wholesalers from delivering wine to a retail business outside the designated sales territory. Suppliers would be forbidden to offer the same brand or brands of wine in the same territory to more than one wholesaler or to sell directly to any retailer in the state. It also forbids suppliers from requiring a wholesaler to purchase one or more brands of wine or other products in order for the wholesaler to purchase another brand of wine. The bill now moves to the full House for final consideration. The House has already approved an identical House bill, HB445 by Rep. John Knight, D-Montgomery.
NEXT LEGISLATIVE DAY
Tuesday, March 18, will be the 25th legislative day of the Alabama Legislature’s 2014 regular session. Only six legislative days remain in this session. The Alabama House of Representatives will meet at 1 p.m. The Senate convenes at 2 p.m.
FEDERAL
Alternatives Aired at E-Fairness Hearing
On Wednesday, the U.S. House Judiciary Committee heard from witnesses offering alternatives to the U.S. Senate-passed Marketplace Fairness Act (S. 743). Two proposals that Internet sellers collect their local sales tax, instead of collecting sales taxes for approximately 9,600 taxing jurisdictions drew the most discussion.
“It would be radical to pass origin sourcing,” said U.S. Rep. Spencer Bachus, R-Vestavia Hills, who is chairman of the committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law.
Stephen Kranz, a partner in the McDermott Will & Emery law firm and a member of the Streamlined Sales Tax Governing Board, said a tax system based on the seller’s location would be easy to game and likely would drive Internet retailers to relocate or set up ghost headquarters in the handful of states without sales taxes.
Judiciary Chairman Bob Goodlatte, R-Va., identified three main flaws he sees in the bill passed by the Senate:
- The public considers it an unfair tax on the Internet, even though it is an existing tax. Shoppers in the 46 states with sales taxes are supposed to report their online and catalog purchases and pay taxes, but it is extremely difficult for states to enforce those regulations.
- The computer software needed to collect and remit sales taxes to thousands of different jurisdictions is perceived as too complicated and expensive to integrate into business operations.
- It would subject online retailers to tax audits in places where they are not physically located.
Other alternates offered during the testimony included:
- A 1099 reporting regime creating a federal database of sales data to give buyers aggregate information about taxes owed so they can self-report.
- Prohibiting shipments of goods into any state in violation of that state’s tax laws.
- Expanding the Streamlined Sales and Use Tax Agreement (SSUTA) to include more states and interstate transactions.
- Keeping the existing standard.
The archived webcast, witness list and the individual testimonies can be found on the U.S. House Judiciary website. Click on the witness name and it will take you to a page with a link to the text of their testimony.
