Tax Cybrary

Sales Tax State Activity Update
January 2005   

Alabama Taxes Interstate Trucks Used In State

An Alabama Department of Revenue Administrative Judge ruled that tangible personal property purchased outside the state for use in interstate commerce is subject to Alabama use tax when used in state.

Background
The Taxpayer operates an interstate motor freight carrier business. The Taxpayer purchased 740 truck tractors and around 500 truck trailers tax-free outside of Alabama. The Taxpayer assigned the tractors to company drivers, who used the tractors to pull loads for the Taxpayer throughout the United States, including within the state of Alabama.

The trailers were first used and registered for IRP purposes outside of Alabama. They were not, however, assigned to a particular truck or driver. Rather, they were used as available, depending on where they had been last used to haul goods. The Taxpayer concedes that the trailers were used in Alabama during the audit period, although like the tractors, there is no evidence when the trailers first entered Alabama or to what extent they were used in Alabama. There was also no evidence the trailers were ever used in the City of Clayton where tax was also being assessed.

The Department audited and subsequently assessed the Taxpayer for State and City of Clayton use tax on its use of the tractors and trailers in Alabama. The Department computed the tax as follows:

Taxpayer was liable for use tax on the truck tractors that were either

1. Assigned to an Alabama-based driver during the audit period
2. Used to haul intrastate loads in Alabama during that period. Applying the above criteria, the examiner determined that 519 tractors, or approximately 70 percent of the tractors owned by the Taxpayer during the audit period, were subject to Alabama and City of Clayton use tax.

Issue
The issue is whether the Taxpayer owes State and City use tax on commercial truck tractors and trailers used in Alabama but purchased outside the state for interstate commerce, pursuant to Code of Ala. 1975, §40-23-61(c); and if not, whether the taxpayer was subject to the “alternative” use tax levied by Code of Ala. 1975, §40-23- 61(e).

Analysis
In the final analysis, the ALJ indicated that by satisfying the four prongs of the Complete Auto Transit, the imposition of use tax did not violate the Interstate Commerce Clause. He further indicated that the four prongs of Complete Auto Transit were satisfied because:

1. The Taxpayer and the activity being taxed, i.e. the Taxpayer’s use of the vehicles in Alabama, had a substantial nexus with Alabama.
2. Alabama provides a credit for sales or use tax paid to any other state. Code of Ala. 1975, §40-23- 65.
3. The Alabama use tax does not discriminate against interstate commerce because property purchased at retail in Alabama is subject to an equal Alabama sales tax; or, if Alabama sales tax is not paid on such property, the subsequent use of the property in Alabama would be subject to Alabama use tax.
4. The use tax is fairly related to the many services provided to the Taxpayer by Alabama.

Conclusion
The ALJ concluded that the taxpayers use of the tractors and trailer in its long haul trucking business in Alabama constituted a taxable use and as such Alabama use tax was intended to apply. In addition, the ALJ found no evidence that the trailers were ever used in the City of Clayton and dismissed the assessment.

The full case can be accessed by clicking here.

(Boyd Brothers v ADOR, {Docket NO. S. 04-203} Entered December 17, 2004)

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