By Tyler Pruett
tyler@southerntorch.com
Starting on Friday, Jan. 1, 2016 Alabama organizations who are exempt from paying sales tax are required to have a universal sales tax exemption form with a valid expiration date. In the past, many different forms of documentation were accepted to prove exempt status, including letters from the Department of Revenue, letters of exemption covering multiple years, and even expired certificates. Under the new law, only the state form STE-1 will be accepted to prove exempt status. The changes are due to legislation passed during the August special session of the Alabama Legislature. Act 2015-534, the “New Annual Exemption Certification/Information Return Requirements,” was passed in hopes to streamline the system. While the new rules apply mostly to the tax exempt organizations themselves, they could dramatically affect the way businesses keep records when making tax exempt sales. The organizations themselves also must record all money saved by utilizing the exempt sales.
Since 1982, tax exempt sales have been at “the seller’s risk,” and a seller is responsible for sales tax if exempt status can’t be proven. In other words, if a business is audited, that business must provide proof that the organization in question is tax exempt, or the business is responsible for paying the taxes. These regulations make retailers responsible for tracking tax exempt status of their clients. This remains the same under the updated law, however the new changes may mean that documentation provided by exempt organizations before January 1, 2016 may no longer be valid. During an audit, the business may seek out the organization for the necessary paperwork long after the transaction, but if none exists the business will be liable for taxes incurred.
Act 2015-534 will not affect all businesses and organizations, however. Retailers that already have a sales tax license who make exempt purchases are not required to provide a certificate of exemption. Also, retailers who already have the correct certificate on file with a current expiration date for their tax exempt customers will not be affected. The Alabama Retailer’s Association has issued three steps to help businesses comply with the new law.The first is to review records on tax exempt organizations in which they regularly do business with, and make sure their documentation is correct and not expired. Secondly, businesses must flag expiration dates of each organization so that when their certificates expire, they may obtain a current STE-1 form. And lastly, verify exemption numbers and expiration dates through “My Alabama Taxes,” or MAT, at http://www.myalabamataxes.alabama.gov. The Retail Association and state officials hope that through proper record keeping on the end of retailers that the effect on businesses and organizations across the state will be minimal.
