Procedural Update: Alabama and Georgia Sales Tax

In Alabama, entities that have statutory exemptions from sales tax and are not otherwise required to obtain a sales tax license must reapply for a new Form STE-1 certificate, while a proposed Georgia regulation would cause all direct pay permits issued prior to April 1, 2016 to expire.

By Jeff Weinkle, SALT manager

Alabama enacted a new law and Georgia proposed sales tax regulations that have the potential to affect a large number of businesses.

ALABAMA SALES TAX EXEMPTION CERTIFICATES

In August, the Alabama legislature passed a bill requiring certain tax-exempt entities to obtain their certificates of exemption on an annual basis. [1] Effective Jan. 1, 2016, entities that have statutory exemptions from sales tax and are not otherwise required to obtain a sales tax license must reapply for a new Form STE-1 exemption certificate each year using Form ST:EX-A1.

Vendors who accept expired Form STE-1 certificates from these exempt customers can be held responsible for uncollected tax. Thus, it is important for vendors to request new Forms STE-1 from any of their customers that have previously provided them and to make note of their annual expiration dates.

Note that this law is only intended to cover entities who are not otherwise required to obtain a sales tax license. [2] Retailers and any wholesalers who have obtained sales tax licenses may continue to use (and vendors may continue to accept) the standard, multi-jurisdictional exemption certificates that contain an Alabama sales tax ID. Further, Alabama has not limited the duration of these standard exemption certificates to one year as they have with the STE-1s.

GEORGIA DIRECT PAY PERMIT HOLDERS

Georgia proposed an amended regulation in November that will update the state’s direct pay permitting process. Under the amended regulation, all direct pay permits issued prior to April 1, 2016 would expire as of July 1, 2016. [3]

Direct pay permits allow businesses to purchase taxable goods and services without paying tax to the vendor at the time of purchase. Instead, the business must calculate and self-remit this tax to the state in the same manner as use taxes. This typically benefits larger taxpayers and manufacturers who may find it more efficient to assess the taxability of all of their purchases in one step due to the applicability of statutory exemptions.

Under the amended regulation, taxpayers must reapply for a new permit on or after April 1, 2016. As part of this process, applicants must attest that (1) they are prepared to comply with the resulting sales/use tax laws and reporting requirements, (2) they have purchased at least $3 million of property and/or services for which the taxability was not known at the time of purchase during the past calendar year, (3) they have no outstanding Georgia tax liabilities and (4) issuance of the direct pay permit will benefit their tax compliance process in one or more ways listed by the regulation. [4] Additionally, direct pay permit holders must agree to waive any applicable interest on prospective overpayments of tax in the event that tax is inadvertently overpaid and a refund is subsequently requested.

While there may only be a couple hundred direct pay permit holders in Georgia, this regulation would impact all vendors who make taxable sales to such permit holders. Exemption certificates only protect vendors when accepted in good faith, which may very well not extend to cover direct pay permits that have expired if they were issued prior to April 1, 2016.

These two changes demonstrate the continuous evolution of state sales tax requirements for vendors and customers alike. HA&W’s SALT team will continue to monitor sales tax developments and can help you and your company navigate through these multistate issues.

Contact Jeff Weinkle, SALT manager, at jeff.weinkle@aprio.com or Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at jeff.glickman@aprio.com for more information.

[1] Signed into law as Legislative Act 2015-534

[2] For example, wholesalers making no retail sales and organizations listed under AL Admin. Code 810-6-3-.07.05. Exempt governmental entities are not required to obtain certificates of exemption but may do so.

[3] See Georgia Tax Notice SUT 2015-005

[4] The purchase of at least $3 million in property for which taxability was not known could occur, for example, if a company with multiple offices purchases property that will be dispersed to each of the offices, but at the time of purchase and delivery to Georgia is not sure where.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.

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