Tuesday, June 16, 2015
No Significant Taxes in ‘Tax Session’;
Special Session Could Be Different Story
The Alabama Legislature’s 2015 regular session began with a $541 million revenue proposal from the governor. Later the House Republican leadership proposed $150 million in revenue measures. The Senate balked and its leadership considered measures to unify the state’s budgets, unearmark revenue and expand gambling in the state.
In the end, the legislative and executive branches couldn’t come to any compromise and the governor vetoed the state’s General Fund budget. Alabama is among many states where budgets remain unresolved, special sessions are inevitable and threats of widespread government layoffs could become reality. Gov. Robert Bentley has yet to set a time for Alabama’s special session to resolve the budget issue by the Oct. 1 start of the 2016 fiscal year. The educated guess is mid-August.
In a session dominated by talk of taxes, the Legislature ended up only raising an estimated $4.5 million through increased insurance industry fees. Other revenue measures that passed – including trying to entice remote sellers to collect sales taxes and tying agency fees to the Consumer Price Index – have no definitive dollar amount attached to them.
More quantitative taxes as well as some that would be detrimental to retailers didn’t make it through the legislative process, including:
- At least $194 million in tax increases, including a $50 million tax increase on retailers, which vocal Alabama retailers stopped in its tracks;
- Unitary combined reporting; and
- A factor presence nexus standard for business activity for income tax purposes.
Another bill that didn’t reach final approval was a state data breach notification measure that initially would have penalized retailers disproportionately to other entities that might be responsible for a breach and had provisions that few states impose. The Alabama Retail Association supports timely notification of consumers of data breaches as long as the legislation doesn’t unduly punish retailers.
The Alabama Legislature did approve some laws that should prove beneficial for retailers, including:
- Doubling what qualifies as a small claim in court.
- Passing sweeping prison reform that left Alabama’s felony theft threshold intact.
- Fixing a 2009 law so businesses could continue to sell alcohol in more than 30 small Alabama cities.
An account of how select bills fared during the 2015 regular session follows. The next issue of Alabama Retail Quarterly will include an abbreviated 2015 session summary.
TAXES AND FEES
Remote Sellers Can Voluntarily
Start Collecting Alabama Sales Tax by Oct. 1
As of Oct. 1, retailers with no stores, warehouses or distribution centers in our state can voluntarily start collecting and remitting sales taxes from Alabama customers.
The Simplified Seller Use Tax Remittance Act (Act No. 2015-448) by Sen. Trip Pittman, R-Daphne, and Rep. Rod Scott, D-Fairfield, allows remote sellers without a physical presence here to collect a flat 8-percent sales tax from Alabama residents who buy their merchandise. Alabama’s average sales tax rate is 8.91 percent and goes as high as 10 percent in many areas of the state.
The state hopes that setting one tax rate that applies no matter where an item is shipped in Alabama will result in the collection of at least some of the more than $200 million in sales taxes that go uncollected in Alabama each year. If online, catalog and phone sellers outside of Alabama join the voluntary program, they can continue to collect only 8 percent in sales taxes even if sales taxes increase in Alabama and Congress allows states to start requiring all retailers to collect sales taxes. New federal e-fairness legislation was introduced Monday. (See FEDERAL)
It is unknown if any retailer will take the bait and start sending any new tax revenue to the state.
State agencies that already have statutory authority to assess fees can now increase those fees every five years based on the Consumer Price Index under Act No. 2015-441 by Sen. Gerald Dial, R-Lineville. It allows eligible agencies to boost fees by the previous 10 years’ average CPI percentage increase or the average since the last change in the fee, whichever is the shorter period. The maximum increase would be 10 percent, or 2 percent for each year in the five-year period.
County and municipal lodging taxes can be filed and remitted with sales, use and rental taxes through the state’s ONE SPOT online filing system beginning Oct. 1, 2016, under Act. No. 2015 – 52 by Sen. Paul Sanford, R-Huntsville.
Act No. 2015-479 by Sen. Steve Livingston, R-Scottsboro, creates an electronic process for business entity and nonprofit filings with probate judges and the secretary of state. By Sept. 1, the secretary of state is to create a pilot online filing system. County participation in the system is voluntarily. The online system will include form filing, online fee recording and payment through credit or debit cards.
As of Sept. 1, municipalities must give residents and businesses fair notice of changes in police jurisdictions. Under Act No. 2015-361 by Rep. Ron Johnson, R-Sylacauga, and Sen. Paul Sanford, R-Huntsville, a municipality may change its police jurisdiction only on Jan. 1 of each year. The bill also requires municipalities to notify residents and businesses 30 days BEFORE enforcing ordinances, licenses, permits or taxes within an altered police jurisdiction. The notification requirements should help businesses avoid unexpected taxes, fees and penalties.
New Law Doubles Small Claims Jurisdiction
As of Aug. 1, amounts in dispute of $6,000 or less will classify as small claims. That is twice the amount that currently qualifies as a small claim. Prior to Act No. 2015 – 224, only Rhode Island had a lower limit for small claims than Alabama. The new law by Rep. Jack D. Williams, R-Birmingham, and Sen. Greg Albritton, R-Bay Minette, puts Alabama’s small claims jurisdiction in line with a larger portion of the country.
As of Nov. 1, manufacturers that did not design or manufacture a product are not liable for damages of the defective product, and if a manufacturer’s design is copied without authorization, the manufacturer is not liable for any damages arising out of the copied design.
Act No. 2015 – 106 by Sen. Cam Ward, R-Alabaster, and Rep. Jack D. Williams, R-Vestavia Hills, rejects the innovator liability theory asserted by two Alabama Supreme Court decisions. Under that theory, a brand-name manufacturer can be liable for injuries resulting from use of a generic product made and sold by a different company.
In 2011, Alabama’s product liability law updated so that no one can sue an Alabama retailer for a defective product, unless that retailer also manufactured, designed or altered the product.
Catfish Origin Notification Broadens Aug. 1
Restaurants, grocery delis and other food service establishments must notify customers of the country of origin for the entire catfish species order, Siluriformes, under Act No. 2015 – 156 by Rep. A.J. McCampbell, D-Livingston, and Sen. Bobby Singleton, D-Greensboro.
The law, pushed by the state’s catfish producers, adds 35 additional families of catfish to those about which food establishments have to communicate country of origin with their customers. It goes into effect Aug. 1.
Posters and requirements related to current catfish labeling and notification can be found under Regulations in the Advocacy section at alabamaretail.org. Those regulations will change as a result of the new law, according to the Alabama Department of Public Health. Your Alabama Retail Association will share that information with the affected businesses.
Law Simplifies Motor Fuel Marketing Act
Retailers that sell fuel plus other goods can discount gasoline below the market price as long as the retail price of the fuel doesn’t dip below the actual cost of the fuel under Act. No. 2015 – 225 by Rep. Mac McCutcheon, R-Huntsville, and Sen. Bill Holtzclaw, R-Madison.
Prison Reform Law Maintains Felony Theft Threshold;
Creates Lesser Felony for Some Thefts
At the insistence of the Alabama Retail Association, Alabama’s new, sweeping prison reform law (Act No. 2015-185) by Sen. Cam Ward, R-Alabaster, maintains Alabama’s felony theft threshold of $500 and doesn’t make the major changes to theft punishments that caused retailers to take issue with a 2011 prison reform plan. Under the new law, thefts between $500 and $1,499 in value become Class D, rather than Class C felonies. Those convicted of Class D felonies will be sentenced to community corrections programs, rather than prison, at least initially. The change is effective Jan. 30, 2016.
Law Raises Debt Exemptions
As of June 11, Alabama has higher debt exemptions. Act No. 2015-484 by Sen. Cam Ward, R-Alabaster, and Rep. Jim Hill, R-Moody, increases Alabama’s homestead exemption from $6,000 for a surviving spouse and $5,000 for a debtor to $15,000 for both; and the personal property exemption went from $3,000 for a debtor and $3,500 for a surviving spouse to $7,500 for either.
By Sept. 1, Licensed Guns
Locked in Vehicles in Secure Lots Allowed
As of Sept. 1, licensed guns can be locked in vehicles parked in secure parking lots, even if the owner doesn’t allow guns inside the facility. Act No. 2015-341 by Rep. Chris England, D-Tuscaloosa, specifies that someone in lawful possession of a firearm can have the weapon and ammunition locked in a compartment of their private vehicle parked at a secure facility, which includes parking lots protected by guards and inside a fence where weapons are prohibited inside the building. The law also includes parameters for minors possessing pistols and the elimination of much of the record keeping for pistols. Gun dealers would have to destroy all records of pistol, revolver or silencer sales Feb. 28, 2016, which is 180 days after the law’s effective date.
Beginning Sept. 1, private employers can have a written, voluntary veterans’ preference employment policy. The policy would have to be applied uniformly to employment decisions, such as hiring, promotion or retention under Act No. 2015-314, the Voluntary Veterans’ Preference Employment Policy Act by Sen. Bill Holtzclaw, R-Madison.
As of Aug. 1, physicians no longer have to be involved in the use of an automated external defibrillator. Act No. 2015 – 161 by Rep. April Weaver, R-Brierfield, and Sen. Tim Melson, R-Florence, encourages owners to receive training on the use of automated external defibrillators and cardiopulmonary resuscitation. It requires defibrillator manufacturers to provide in-house training to companies that buy the defibrillators. It also includes a “Good Samaritan” exemption from liability for any individual who renders emergency treatment with a defibrillator.
Alcohol Sales Continue in More Than 30 Small Cities
The first two bills signed into law in the 2015 regular session allow businesses to continue to sell alcohol in more than 30 small Alabama cities that approved alcohol sales in referendums since 2009. The Alabama Retail Association worked with the mayors of the cities involved and other interested parties to shepherd the bills through the legislative process in the first two weeks of the session.
Act Nos. 2015-1 and 2015-2 by Rep. Jimmy Martin, R-Clanton, and Sen. Paul Sanford, R-Huntsville, allow businesses to operate as they did before a February Supreme Court ruling and allows cities of 1,000 or more people in Clay, Randolph and Blount counties to vote on alcohol sales, if they so desire. The Legislature also authorized the cities in Blount County to go ahead with referendums (See local alcohol story).
Powdered alcohol, which can be reconstituted with water and food, is expected to launch this summer, but by Sept. 1, it will be illegal in Alabama. Act No. 2015-385 by Sen. Vivian Davis Figures, D-Mobile, and Rep. Chris Pringle, R-Mobile, makes it illegal for a person or business to possess, purchase, sell, offer to sell or use powdered alcohol. Alabama joins at least 13 states that have banned the product permanently.
Alabama has a new timetable for wet/dry alcohol referendums. Elections asking voters if they want alcohol to be sold in their area or not will be scheduled 82 to 97 days after a petition is filed for a referendum under Act No. 2015-440 by Sen. Dick Brewbaker, R-Montgomery. The current time frame is 30 to 45 days. Brewbaker said the new law makes it possible for Alabama voters living overseas to participate in such referendums.
The 2015 regular session saw a flood of local alcohol-related laws on a variety of fronts.
A steady flow of governing bodies got the legislative go ahead for Sunday alcohol sales if those bodies or the voters so decide.
The cities of Bay Minette, Millbrook, Scottsboro, Sylacauga, Valley and Wetumpka were authorized to allow Sunday alcohol sales through a vote of their governing bodies. The town of Oak Grove, Marshall County municipalities, Houston and St. Clair counties along with their municipalities and Shelby County were authorized to ask voters if they would like to allow Sunday sales.
DRAFT BEER SALES
Local governing bodies were authorized to allow draft beer sales this session in the towns of Collinsville and Rogersville; the cities of Demopolis, Fayette, Fort Payne, Heflin, Millbrook and Wetumpka; as well as Dallas County and its municipalities and the municipalities of Blount and Marshall counties.
In the November 2016 General Election, Chilton County will hold a referendum on whether to allow six-days-a-week alcohol sales. Chilton is one of 25 dry counties in Alabama, according to the Alabama Alcoholic Beverage Control Board. All but one of Alabama’s dry counties have municipalities that allow alcohol sales. In Chilton County, Clanton, Jemison and Thorsby already allow alcohol sales.
The city councils of Jasper, Hoover and Vestavia Hills were authorized to designate entertainment districts in which patrons of licensed establishments may walk anywhere within the designated area with open containers of alcoholic beverages.
Almost 1,200 bills and resolutions died from inaction when the Alabama Legislature ended its 2015 regular session on June 4. The good news is that no legislation Alabama Retail actively opposed became law. Many bills of concern to retailers also died. Among the bills that did not become law, including almost $194 million in new taxes, any of which could reappear in the special session, are:
Alabama retailers responded quickly and decisively when the Alabama Legislature proposed an almost $50 million tax increase on retailers. HB553 by Rep. Ken Johnson, R-Moulton, would have taken away the rebate Alabama retailers receive for collecting and remitting Alabama sales taxes in a timely manner.
Alabama is among 28 states that offer such a rebate. Since 2001, Alabama’s monthly discounts have been capped at $400, no matter the number of locations a retailer operates. The most a retailer can retain annually is $4,800. That money remains with retailers thanks to your calls, e-mails, texts and conversations with Alabama legislators. When retail speaks with one voice, lawmakers listen.
Mandatory unitary combined reporting of corporate income tax, a taxing scheme that no other Southeastern state has and one that would greatly hinder the state’s ability to attract new business, went nowhere in the 2015 legislative session. The Alabama Retail Association and the Business Associations’ Tax Coalition, a coalition of the major business groups in the state, oppose combined reporting. Two bills died without a committee vote: HB142 by Rep. Mike Hill, R-Columbiana, which was part of the governor’s proposed revenue package, and HB455 by Rep. Richard J. Lindsey, D-Centre. The governor estimated this legislation would have generated $20 million in new taxes.
The full House never considered legislation that would have established a factor presence nexus standard for business activity for income tax purposes. Fiscal experts estimated SB497 by Sen. Greg Albritton, R-Bay Minette, and HB466 by Rod Scott, D-Fairfield, would have raised $2 million to $8.5 million annually for the state. At the request of the Alabama Retail Association and other business groups, all references to combined reporting were deleted from this legislation.
The full House did not debate legislation increasing the maximum amount of business privilege taxes from $15,000 to $20,000. HB581 by Rep. Elaine Beech, D-Chatom, also would have changed the tax rate determination to taxable net worth, or assets minus liabilities. The bill would have raised taxes on businesses by an estimated $39 million annually. The bill did exempt those with less than $10,000 in taxable net worth from the tax, which would have meant more than 106,000 small firms would no longer have to pay the annual minimum $100 tax.
The House budget committees approved several revenue measures that never received floor debate, including:
- Cigarette tax legislation that would have raised an estimated $66 million received committee approval. HB572 by Rep. Patricia Todd, D-Birmingham, would have increased the cigarette tax by 25 cents and decreased the discount wholesalers receive for collecting the tax by 2.75 percent.
- A 4-percent sales tax rather than a 6-cent excise tax on lubricating oil that would have raised a minimum of $8.5 million. HB587 by Rep. Terri Collins, R-Decatur, would have raised the tax on a 55-gallon barrel of lube oil from $3.30 to $200.
- HB595 by Rep. David Faulkner, R-Birmingham, which would assess an annual license fee for amusement or entertainment machines regardless of the sales derived from the machines. It would have raised $1.4 million.
Rep. John Knight, D-Montgomery, offered two solutions for removing the sales tax on food this year, neither of which received even committee consideration. HB569 would have removed food sales tax all at once, while HB570 would phase food out of the sales tax system over a four-year period by reducing the sales tax rate a percentage point each year.
Sen. Bill Hightower, R-Mobile, said he would work with stakeholders to develop enabling legislation for a flat income tax that is revenue neutral. His 2015 proposal, SB409, would have cut the individual income tax rate from 5 percent to 2.75 percent, allowing for charitable contribution deductions and those deductions required under federal law. It also would have cut the corporate tax rate from 6.5 percent to 4.59 percent and eliminated the deduction for net operating loss, capital credits and rehabilitation and preservation credits among others. His proposal, a constitutional amendment, never received committee approval.
Alabama Didn’t Adopt Its Own
Data Breach Notification Law
A state data breach notification bill made it to the Senate calendar, but never saw a Senate vote. The Alabama Retail Association contributed to several rewrites of SB106 by Sen. Arthur Orr, R-Decatur, to ensure the legislation didn’t punish retailers who become victims of cyber thieves disproportionately from other entities that might be targets of a breach. Had the bill become law, Alabama would have been the 48th state to provide consumers with timely notification of data breaches. Federal legislation is being debated to establish a uniform nationwide data breach notification standard.
Alabama Retail also worked to protect retailers who already face spending at least $7 billion nationwide on payment terminals that accept more secure credit and debit cards. The deadline to upgrade or potentially face liability is Oct. 1.
Alabama’s Minimum Wage Same as Federal Minimum
Both statewide and local state minimum wage bills failed to get committee approval this year. Alabama uses the federal minimum wage.
HB42 by Rep. Darrio Melton, D-Selma, which was part of the House Democratic Caucus’ agenda, would have created a state hourly minimum wage of $9.80 by 2018, then allowed the wage to be adjusted every three years based on the Consumer Price Index. HB384 by Rep. Napoleon Bracy, D-Prichard, would have set a $10.10-an-hour minimum wage specifically for Mobile County and created a civil action if an employer had failed to pay that minimum.
Rep. Mike Hill, R-Columbiana, attempted to make all compensation, such as wages and salaries, available for garnishment or debt collection. While HB634 received committee approval, the full House never considered the bill. Alabama, in general, follows federal law on wage garnishments, which provides that creditors cannot take more than 25 percent of your disposable earnings, or any amount that exceeds 30 times minimum wage, whichever is the lesser amount. Federal garnishment restrictions don’t apply to child support, student loans and taxes.
Bills Banning Local Government
Interference with Hiring/Labor Relations Die
Legislation that would have prevented local governments from interfering with such employment issues as minimum pay, time off, background checks and other labor issues made it to both the House and Senate floors, but didn’t make it to a vote in either chamber. The companion bills were HB495 by Rep. Arnold Mooney, R-Birmingham, and SB403 by Sen. Greg Albritton, R-Bay Minette.
Marsh May Reprise Workers’ Comp Reform
Late this year and in the 2013 regular session, Alabama Senate President Pro Tem Del Marsh, R-Anniston, introduced workers’ compensation reform legislation. This year’s version (SB330) never received a committee hearing. Reform legislation may surface again, but at this time no stakeholder talks have been scheduled.
Senate Banking and Insurance Committee Chairman Slade Blackwell, R-Birmingham, appointed a study committee to review debt collection reform before the 2016 regular session. Sen. Linda Coleman, D-Birmingham, this year introduced legislation that would have limited retailers’ ability to extend credit to the customers who need it the most. The 51-page SB29 would have subjected those who try to collect debt to lawsuits. Several major business organizations objected to the bill as written, including the Alabama Retail Association.
Lawmakers deflected bills that would have privatized Alabama’s state stores (SB115 by Sen. Arthur Orr, R-Decatur) and those that bypassed the state’s three-tier system of alcohol regulation and licensing, like SB452 by Sen. Bill Holtzclaw, R-Madison, related to brewery growler sales. Two committees will study those issues and report back on their findings before the 2016 legislative session.
The Alcoholic Beverage Control Reform Task Force (HR368), led by Rep. Alan Boothe, R-Troy, which will look at privatization and the three-tier system, had it first meeting June 11. Rep. Chris Pringle, R-Mobile, will serve as interim vice chairman. Although the Senate initially wasn’t included in the task force, ultimately there will be a Senate co-chairman, those at last week’s meeting said.
Meanwhile, the nine-member Alabama Alcoholic Beverage Study Commission, created by Act No. 2015 – 144, has set three public hearings to get input on the manufacturer-to-distributor-to-retailer system and how to reform Alabama’s alcoholic beverage laws to make them competitive with other states:
- 2:30 p.m. Thursday, July 16: Government Plaza, Ground Floor Auditorium, 205 Government Street, Mobile, 36633.
- 10 a.m. Tuesday, July 28: Hoover City Hall, Third Floor,
100 Municipal Lane, Hoover, 35216
- 2:30 p.m. Tuesday, July 28: Municipal Building, 308 Fountain Circle, Huntsville, 35801
Sen. Paul Sanford, R-Huntsville, and Rep. Alan Harper, R-Aliceville, will lead the commission, which consists of eight legislators, both senators and representatives, and a member of the state’s Alcoholic Beverage Control Board. The commission is to publish its findings by Dec. 31.
NEXT LEGISLATIVE DAY
The Alabama Legislature will meet in special session this summer but no date has been set. Both the Alabama Senate and House will convene at noon Tuesday, Feb. 2, 2016, for the Legislature’s 2016 regular session.
Encourage Alabama’s Congressional
Delegation to Co-Sponsor New E-Fairness Bill
Monday, U.S. Reps. Jason Chaffetz, R-Utah, and Steve Womack, R-Ark., along with a group of 14 other House members, introduced H.R. 2775, the Remote Transaction Parity Act of 2015, which would give states the authority to enforce their existing sales tax laws on all transactions within their borders — whether online or on Main Street. The effort could potentially end the as much as 10-percent, government-sanctioned price advantage online-only retailers have over brick-and-mortar retailers.
Key components of the bill include:
- States have the ability to enforce their own laws, while limiting their ability to audit small businesses outside their borders;
- Consumers will only be charged sales tax where they live and vote.
- Free certified software solutions for small businesses to ensure compliance; and
- A phased-in small business exemption to ease the transition as the online loophole is closed.
Besides support from the Retail Industry Leaders Association, the National Retail Federation and hundreds of others, two of the largest online-only retailers are backing the bill – Overstock and Amazon, Chaffetz said.
Your Alabama Retail Association sent a letter last week encouraging the bill’s introduction.
The U.S. Supreme Court has left this issue squarely in the hands of Congress. Previous attempts to close the sales tax loophole have failed in the U.S. House despite overwhelm bipartisan support in the U.S. Senate.
House Judiciary Chairman Bob Goodlatte, R-Va., whose committee has jurisdiction over the online sales tax issue, has proposed retailers charge out-of-state customers sales taxes based on the sellers’ local rate, rather than the rate where the customer lives. Goodlatte’s proposal would benefit the few states with large, online-only retailers at the expense of brick-and-mortar retailers and every other state.
Contact Alabama’s U.S. House members and ask them to sign on as co-sponsors of H.R. 2775. You’ll need your zip code+4 to contact your U.S. representative.
More than $200 million in Alabama sales taxes go uncollected and as many as 4,000 jobs are lost each year due to the online sales tax loophole, according to a 2012 University of Alabama at Birmingham study.
On June 9, the U.S. House on a voice vote agreed to permanently extend a 15-year-old moratorium on Internet access taxes. An effort will be made in the Senate to combine the Internet access bill with e-fairness legislation, such as the Remote Transaction Parity Act of 2015 (see above).
The access tax moratorium, H.R. 235, known as the Internet Tax Freedom Act, prevents states from imposing taxes on Internet access, while e-fairness legislation allows states to require internet sellers to collect sales taxes.
Marketplace fairness supporters tried to combine the two issues late last year, but that effort failed. Congress instead extended the moratorium on Internet-access taxes, but only until Oct. 1.
On June 10, the U.S. House voted 300-131 to repeal country of origin labeling (COOL) requirements for beef, pork and chicken through legislation (H.R. 2393). Under COOL, meat manufacturers must indicate where meat was born, raised and slaughtered. The labeling requirement applies to most meat and produce and requires suppliers and retailers to work together to provide country of origin information to consumers.
The House voted for repeal in an attempt to avoid World Trade Organization-backed tariff threats from Mexico and Canada. The WTO Dispute Settlement Body meets tomorrow, June 17, to consider Canada and Mexico’s plan to place more than $3 billion in combined tariffs on U.S. meat exports. The Senate would have to act to avoid the tariffs.
The U.S. meat industry called for the repeal of the law, which they have fought for years, including unsuccessfully in federal court. They say it’s burdensome and costly for producers and retailers.