Wednesday, August 12, 2015
Special Session Ends with No Budget;
Special Session No. 2 Coming Soon
The Alabama Legislature met for eight days in special session without producing a budget for the state’s general operating expenses. They’ll be back sometime prior to the Oct. 1 start of the state’s fiscal year to develop a spending plan that covers Medicaid, prisons, public health, state troopers and the other General Fund agencies. The governor has not set the date for the next special session.
Lawmakers couldn’t agree on revenue measures and couldn’t agree on what to cut to balance the budget without revenue.
Revenue measures that affect retailers and other business that could resurface in the second special session include:
- Unitary combined reporting
- Business privilege tax (Click for issue brief)
- Elimination of FICA deduction on personal income tax return (Click for issue brief)
- Cigarette tax
Surprise: Senate Budget Panel Advances
Combined Reporting; Tax Increase on Business
Ultimately Dies, But Could Resurface
A taxing scheme that would greatly hinder the state’s ability to attract new business cleared a Senate budget committee but never made it to a floor debate. SB51 by Sen. Linda Coleman, D-Birmingham, called for the mandatory unitary combined reporting of corporate income tax, something no other Southeastern state requires. Under the leadership of Sen. Trip Pittman, R-Daphne, the Senate Finance and Taxation Education Committee approved Coleman’s bill on a vote of 9-5.
Coleman’s bill was a last-minute addition to the committee agenda. A unlikely group of allies, Pittman (R), Coleman (D) and Sen. Harri Anne Smith, I-Slocomb, later appeared together in an impromptu news conference to advocate for combined reporting andblast the House for threatening to cut Medicaid. “We’re going to be boxed in to nothing” if we don’t send some revenue options to the floor, Smith earlier told the committee. (Photo source: WSFA 12 News)
The Alabama Retail Association and the Business Associations’ Tax Coalition, a coalition of the major business groups in the state, as well the state’s major economic development groups oppose combined reporting. ARA President Rick Brown, who serves as BATC chairman, testified against the bill during the committee hearing. Two similar bills died in the regular session without a committee vote, even though one of the regular session bills was part of a $541 million revenue plan advanced by the governor. The governor did not include combined reporting in the call for the special session. It would have needed a two-thirds vote, rather than a simple majority, to pass.
Economic development organizations said even the threat of the legislation was affecting industry recruitment.
Under the legislation, companies and their affiliated entities would have to file all income with the Alabama Department of Revenue, whether or not it was earned in Alabama, and the department would determine the amount of taxes due. The bill would have applied to every business, both inside and outside the state, with multi-state tax obligations.
BATC, in a statement to lawmakers opposing the bill, said it would have given ADOR unprecedented authority to “unilaterally determine tax policy and create a bureaucratic nightmare resulting in delays and confusion for the taxpayer.”
Cigarette Tax Fails
Legislation to increase Alabama’s state cigarette tax by 25 cents a pack never even made it out of committee. HB10 by Rep. Connie Rowe, R-Jasper, failed Aug. 4 on an 8-7 vote of the House Ways and Means General Fund Committee. The bill would have raised the per-pack tax from 42.5 cents to 67.5 cents. It was estimated to bring in about $66 million for the state’s General Fund. E-cigarettes, cigars and other tobacco products were not included in the bill, although the governor included taxes on those products in his call.
Governor Signs Factor Presence Nexus into Law
The governor signed into law Tuesday legislation that establishes a factor presence nexus standard in Alabama for business activity for business privilege and income taxes. Lawmakers were almost unanimous in their support for Act. No. 2015-505 by Rep. Rod Scott, D-Fairfield. Although not part of the governor’s call for the special session, this taxing structure is projected to generate $2 million to $8.5 million, according to the bill’s fiscal note. The new law applies beginning with the current tax year.
Scott also proposed this legislation in the regular session and like his earlier bill, the current law makes no reference to combined reporting. All references to combined reporting were deleted from this legislation at the request of the Alabama Retail Association and other business groups.
Factor presence creates nexus for taxing purposes even if a business has no physical presence in a state. The law uses four possible thresholds for nexus: $50,000 of property; $50,000 of payroll; $500,000 of sales; or 25 percent of total property, payroll or sales. If any of those four thresholds are met a business will be considered to have nexus in Alabama and be subject to the state’s business privilege and income taxes. Those thresholds will be evaluated each year based on the Consumer Price Index and could change if certain conditions are met.
“If a company has no physical presence, but meets one of these standards, the state has the right to tax them,” Scott said in explaining his bill.
Rep. Phil Williams, R-Huntsville, told the House he supports the concept if it helps local businesses compete more fairly with out-of-state or online businesses. The legislation relates only to business privilege and income taxes and has no bearing on sales taxes.
If the governor agrees, by Jan. 1, 2016, entities that have been granted sales, use and lodging tax exemptions must file annually for certificates of exemption with the Alabama Department of Revenue and provide information to the department about tax-free purchases made during the past year under those granted exemptions. The Alabama Department of Revenue is to develop rules for filing the certificates and for what is be included in the annual reports under SB24 by Sen. Trip Pittman, R-Daphne. Of the 462 exemptions currently granted by state statute, 228 are for sales taxes, 178 for use taxes and 56 are for lodging taxes, said Rep. Lynn Greer, R-Rogersville, who handled the bill on the House floor.
When Pittman presented the bill, he said “10s of millions of dollars of revenue is being lost,” but the bill had no revenue estimate attached to it and Greer said he had no evidence or examples of a nonprofits misusing their tax exemption.
The bill should not impact legitimate wholesale purchases.
Act No. 2015-502 by Rep. Steve McMillan, R-Bay Minette, makes the possession or use of an automated sales suppression device a Class C felony. Convictions also will result in a fine of up to $100,000 for an individual and up to $500,000 for a corporation. The devices, also known as phantom ware or zappers, are used to delete records of sales transactions from cash register records so that sales taxes are under-reported to the taxing authorities. The law went into effect when the governor signed it at 3 p.m. Tuesday.
Since Aug. 7, the governor has had on his desk, SB9 by Sen. Jimmy Holley, R-Elba, which gives the Elba City Council the authority to approve draft beer sales in that city.
Repeal of Withholding Exemption Effective Sept. 1
Starting Sept. 1, a 1998 provision that allowed some working Alabamians to be exempt from having state income tax withheld from their paychecks will no longer be effective.
The Taxpayer Fraud Prevention Act, Act No. 2015-504 by Rep. Ken Johnson, R-Moulton, repeals that provision and is expected to increase the Education Trust Fund by $12 million. The repeal was part of Gov. Robert Bentley’s $302 million special session tax package.
Currently, an employer is not required to withhold income taxes from an employee’s wages if that employee has signed an exemption certificate that says he or she had no income tax liability in the preceding tax year and anticipates having no tax liability in the current year. Under the new law, employers must withhold income taxes on all employees. Any employee who has an A-4E form on file with an employer, needs to complete and provide their employer with an A-4 form (2014 revision). The Alabama Department of Revenue plans to communicate with employers via email, online and through social networks about this change, said Neal Hearn who heads the withholding tax section of ADOR.
Under state law, anyone earning more than $5,000 annually must file an income tax return.
Currently, Alabama vehicle dealers do not collect sales tax on automobiles, motorcycles, trucks, truck trailers or semitrailers purchased within the state by out-of-state residents who within 72 hours of buying it drive the vehicle out of Alabama for use in another state. It is up to the state where the vehicle is delivered or used to collect its taxes when the vehicle is registered in that state. Most states provide full reciprocity for similar drive-out-of-state sales. Act. No. 2015-503 by Rep. Ken Johnson, R-Moulton, creates a level playing field for the taxation of vehicle sales between the state of Alabama and, primarily Florida, although other states with similar taxing practices would be included. In Florida, based on that state’s law, dealers charge Alabama’s two-percent vehicle tax if an Alabamian buys a vehicle in Florida for use in Alabama, but Florida keeps the tax, rather than sending to Alabama. Under this new law, if a state doesn’t reciprocate with Alabama on these taxes, Alabama dealers are to collect the Alabama sales tax on the purchased vehicles.
The law is effective Jan. 1, 2016. According to the bill’s fiscal note, it will add $840,000 to the General Fund and $1.16 million to the Education Trust Fund annually.
NEXT LEGISLATIVE DAY
The Alabama Legislature will meet in a second special session 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.
Alabama Retail Travels to D.C.; Continue to Urge Your Representative to Co-Sponsor E-Fairness Bill
The need to allow states to enforce existing sales tax laws on ALL transactions within their borders — whether online or on Main Street — was among the topics members of the Alabama Retail Association executive committee discussed recently with Alabama’s congressional delegation in Washington, D.C. Passing H.R. 2775, the Remote Transaction Parity Act of 2015, is the best alternative for addressing the current inequity in the tax treatment of brick-and-mortar sales as compared to internet sales. That special, government-sanctioned treatment gives some online sellers as much as a 10 percent advantage over their Main Street competitors.
Alabama’s congressional delegation is home for Congress’ August recess. If you run into your representative in the district, please urge them to co-sponsor H.R. 2775 and convince leadership to bring the bill to the House floor for a vote. Alabama Retail Chairman George Wilder, Vice Chairman Ricky Bromberg, Executive Committee Designee Jacob Shevin and Alabama Retail Member Terry Shea paved the way for your conversations with their visit to D.C. last month. The National Retail Federation regonized Wilder and Shea as being among America’s Retail Champions, with Wilder being named in the top five retail advocates in the country.
The U.S. Supreme Court has left the sales tax fairness issue squarely in the hands of Congress. Previous attempts to close the sales tax loophole have failed in the U.S. House despite overwhelming bipartisan support in the U.S. Senate. Alabama’s representatives need to hear from you to realize the importance of this issue to retailers.
Contact Alabama’s U.S. House members via their Washington offices 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.
In July, the U.S. Department of Labor proposed more than doubling the current salary threshold to be exempt from overtime and automatically increasing that threshold every year thereafter. The department is seeking comments on that potential rule change through Sept. 4. Add your voice to the conversation.
Submitting comments that provide the employer perspective on this rule change could have a significant impact on the final rule.
The Alabama Retail Association and Lehr, Middlebrooks, Vreeland and Thompson presented a webinar last week detailing the impact of this rule change on retailers. To learn more about this issue, view and hear the Aug. 5 webinar Wage and Hour Changes, Confusion and Compliance, by clicking here. Use the promo code ARA to access this $95 webinar for FREE. The no-charge access to this webinar is a benefit of your membership in the Alabama Retail Association
The National Retail Federation plans a conference call tomorrow, Thursday, Aug. 13 at noon CST on this issue. Register Now.