Refunds just got a whole lot easier in Alabama. In a typical transaction, customer pays business, who in turn remits the sales tax to the government. While technically the state can go after consumers directly for sales tax, it is not practical for the government to do so. As a result, it is generally the business that finds itself subject to a sales and use tax audit. But when it comes to a refund, where customer is the one who paid the tax while business is the one who remitted it, who applies?
Previously, Alabama consumers were required to file a joint petition with the business that collected and remitted the tax. However, Act 2018-180 (S.B. 63), Laws 2018, which became effective on March 8, has changed that, providing that customers can now directly apply for the refund by themselves. Not only can a consumer directly apply, but a business can apply by itself as well in certain circumstances.
Such applications are not limited to sales tax. Consumers can also apply for use tax, public utility tax, and transient occupancy taxes by themselves. This opens the door for customers who were previously unable to convince businesses to go through the time and effort of applying for a refund that would not benefit the business in the end. With no or little motivation to get involved, one can easily see why a business would be uninterested in taking up the fight for someone else’s refund.
However, there are circumstances when it does benefit a business to apply for a refund. If the business remitted more tax than they actually collected from customers, then the business can apply on its own for a refund for the overpayment. Meanwhile, if the business wants to apply for a refund of taxes paid directly by its customers, then it is required to credit or repay customers before the refund is granted. This could mean businesses paying out a large amount of money upfront.
Ultimately, consumers are no longer reliant upon businesses to obtain certain tax refunds. Instead of one entity having to apply to for a refund, now thousands or even millions of its individual consumers can obtain their own refund. It will be interesting to see what the practical effect of this is on the Department and how they handle the extra burden. In the meantime, it is vital for taxpayers to educate themselves on the proper procedures and statutes of limitation for refunds so they don’t miss out on this new opportunity.
Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is also an adjunct professor and assistant editor to the American Bar Association’s The Sales and Use Tax Deskbook. She can be reached at 954-800-4138 or JeanetteMoffa@FloridaSalesTax.com.