On January 3, 2013 Judge Bill Thomson issued yet another ruling on the nexus rules for Alabama local sales tax. I’ve lost count of how many rulings he has issued. In this case, as with most of the others, the Judge held that the retailer did not have nexus in the city where the services were performed becuase they did not have “significant physical presence” in the city where the sales occured. His decsions are always tied to the Yelverton decision issued by the Alabama Court of Appeals in 1997. He hates this decision and takes every opportunity to comment about how out of date their ruling is and how the Alabama Department of Revenue has not updated it’s regulation on local tax nexus since the Yelverton decision was issued.
Under the Yelerton rule, a retailer has sales tax nexus with a home-rule city only when it has property located in the city or when the sales activity occurs in the city. That’s it. You can perform services in the city and not create nexus, you can delivery property on your own truck and not create nexus, and you can meet with cusotmers on technical issues and not create nexus. In the January case, the company was headquartered in Montgomery, Alabama and made sales calls over the phone for team photography. The photographer would then go the the towns and take the phototos and then sell packages to the team and families. Only on 4 occassions did the company go to a town for a “sales presentation”.
Based on the Yelverton rule, the company did not have nexus in the cities where the sales call was made over the phone. Even though the photography service was performed in the city, the nexus is determined by the sales activity. In the 4 cases where an “inperson” sales visit was made, the Judge held that even thought they were in the city, he did not believe that 1 sales visit was sufficient to create nexus. Great, well what about 2 visits, or 3 visits or more. How many visits are sufficient to create nexus in a home-rule city for sales tax? Is this also the rule for state sales tax? http://www.salestaxstrategies.com/tax-consulting-services.html#salesTaxNexu
Each year Judge Thompson issues at least one ruling on this topic. I fully expect to see more during 2013. Despite these rulings, the auditors hired by the home-rule cities to audit taxpayers seem to assert that everyone has nexus and that local tax is due on every transaction. Be alert to this labarinth of rules related to local tax jurisdiction.
See Paris John Van Horn (Sport Shot Photography) vs State of Alabama Department of Revenue Docket 12-863
Ned Lenhart, CPA