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By Altus Group | January 12, 2018

By: Karen T. Syrylo, CPA

The Alabama supreme court on December 8, 2017 issued its order, without an opinion, that affirmed the Jefferson County Circuit Court’s holding that an out-of-state company that delivered its product via common carrier to Alabama customers was not liable for the City of Birmingham business license tax because it was not carrying on a business in the city.

Is it a federal issue?

The city had assessed the tax for years 2008 through 2012 in 2013 based on the classification for wholesalers or retailers that sell general merchandise from “fixed points of sale locations.” The company filed a timely appeal and also paid the assessed tax as required by Alabama law for the appeal process. After the city had sought federal jurisdiction in U.S. District Court claiming existence of a federal question, the company also filed a motion to remand the matter to state court; in 2015, the U.S. District Court for the Northern District of Alabama overruled the city’s request and granted the company’s motion by ordering the case be remanded to state court; the U.S. District Court ruled that the Tax Injunction Act applied (under the Tax Injunction Act, 28 U.S.C. section 1341, the U.S. courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”) The Jefferson County Circuit Court heard the case and issued its decision in favor of the company on March 17, 2017. Of course, now that the state supreme court has ruled, review by the U.S. Supreme Court could be requested, but the Court’s recent history makes it unlikely it would hear the case.

The company’s activities

The company was headquartered and conducts its operations in Canada. All of its employees were based in Canada. The company never had a business location or physical address in Alabama, and never had any employees based in or conducting operations in Alabama. It did not solicit sales or conduct sales or advertising activities in Birmingham. No company employees ever came to the city to facilitate sales transactions or deliveries of goods; all communications between the company and its Alabama customers were via telephone and email. The company’s only “connection” with the city consisted of the sale of hydrocarbon products to two Alabama-based customers.

The company did not itself deliver any of the products but instead shipped the products into Alabama by third-party rail or trucking carriers. In some cases, the company contracted directly with its customer for the sale of company product and arranged for the common carrier delivery, during which time the company did not “possess or control the product during shipment.” In other cases the company arranged to purchase product from an intermediary supplier and that supplier then arranged for the shipment of the product to the customer; title to the goods remained with the supplier during the shipping process; these third-party suppliers were all located outside of Alabama.

Arguments by the taxing authority

Two other issues noted by the court: 1) The city contended that the company had agents in the city, saying that the facility where the product was offloaded from railroad tank cars to trucks acted as an agent of the company; but the court found evidence that it was the company’s customer who contracted and paid the facility and therefore the facility was acting on behalf of the customer and not the company. 2) The city also argued the company had property within the city; but here too the court said that evidence showed that even though the company did have title to the products at some points in the delivery process, the company did not have possession or control over the products while the goods wherein the city – at all times while located in the city, the products were in the care, custody and control of the rail or trucking carriers up until the time title passed to the customer.

The law helps

The Jefferson County court noted that Alabama’s statute “makes clear that sellers whose merchandise is delivered within a municipality by a common carrier cannot be subjected to business license tax at all” if that is its only activity. Citing Alabama law that grants municipalities the power to impose business license taxes only for trades, businesses, or vocations “which may be engaged in or carried on in the municipality,” the circuit court held that the company did not engage in or carry on business in the city. The fact that the company “may have had title to the products for some period of time while they were in possession of the delivering rail or trucking carrier is not enough to allow the imposition of a business license tax.”

The circuit court ruled that the license tax assessment was contrary to law and invalidated the assessment, and ordered a full refund of the amount the company had paid plus additional interest. The Alabama supreme court issued its order affirming the circuit court without its own opinion.

Thomas Barnett, Jr., and City of Birmingham v. Elbow River Marketing Limited Partnership (Appeal from Jefferson Circuit Court: CV-14-624) No. 1160678, 12-8-17,

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