Alabama Tax Tribunal Provides Clarification on Refund Statute of Limitations

In an Opinion and Preliminary Order in SLJ Holdings, Inc. v. State of Alabama Department of Revenue; Docket Nos. S. 23-618-LP, S. 24-0469-LP, and  S. 24-0470-LP (December 11, 2025), the Alabama Tax Tribunal concluded a taxpayer was entitled to the reduced machine rate on certain purchases of propane and oxygen, and also provided clarification on the applicable statute of limitations for refund claims for sales tax.

SLJ Holdings, Inc., formerly Jordan Scrap, Inc., filed a refund petition for sales tax on propane and oxygen purchases from February 2020 to October 2022. The Alabama Department of Revenue denied the refund, citing a two-year statute of limitations and the determination that the gas purchases did not qualify for the reduced machine rate.

The Department argued that about half of the refund claims were outside of the two-year statute of limitations that the Department applied, since the Taxpayer did not and was not required to file a return for the tax at issue. The Department’s position was that the three-year statute of limitations could not apply. Under Alabama law, the statute of limitations for filing a refund petition is either three years from the date the return is filed or two years from the date of payment of the tax, whichever is later. 

The Tribunal disagreed with the Department and held that the Taxpayer had three years from the date of filing of the return by the gas vendors, if timely, to file the refund claims. However, the burden of proving timely filing is on the Taxpayer.

The Tax Tribunal then examined whether the propane and oxygen purchases qualified for the machine rate, which applies to items used in manufacturing processes. The propane purchased was used in a piece of equipment similar to a blow torch, and the Department determined the torch to be a hand tool, not a machine. The Department understood the torch to be used to dismantle large structures, such as bridges, buildings, and boats, and not for manufacturing. Also at issue were taxes paid on purchases of oxygen, which was used in the same process as the propane purchased.

The Taxpayer argued the tools were used to cut metal for marketability, which constitutes processing, and that equipment used for dismantling structures did not involve the gas purchases for which refunds were sought. The Tribunal concluded that the gas purchases qualify for the machine rate, reversing the Department's denial related to the application of the machine rate. However, the Tribunal noted the Taxpayer must provide proof of timely filing of the tax returns in order to avail itself of the three-year refund window.

To read the full Opinion and Preliminary Order, click here.

Alabama Legislature Approves Tax Breaks; Await Governor's Signature

The Alabama Legislature has now approved and sent to Governor Ivey legislation to further reduce the state sales tax on food. Previously, the Legislature had reduced the rate from 4% to 3%. Assuming Governor Ivey signs the current legislation, the rate will drop from 3% to 2% beginning on September 1, 2025. To see the legislation, click here.

The Legislature also passed legislation that removes the state's 4% sales tax on baby care, feminine hygiene, and maternity products. For details on the items exempted, in addition to diapers and baby formula, click here. 

Also passed was a new dollar-for-dollar tax incentive program for individuals and businesses that donate money to rural hospitals. The Rural Hospital Investment Program has an annual statewide cap of $20 million for 2026, $25 million for 2027, and $30 million for 2028. The law requires a 10% match from local communities, in cash or of in-kind services. The tax credit ends in three years unless extended by the Legislature. For details, click here.

Finally, lawmakers gave final approval to legislation that exempts remote workers from the state's income tax under certain circumstances, including working in the state for 30 days or less per year. For more, see the legislation by clicking here.

Alabama Overtime Pay Income Tax Exemption To End

It was a huge success. Too huge.

As the Alabama Legislature winds down its 2025 General Session, proposed legislation that would have extended the exemption from Alabama income tax for "overtime" pay has failed to pass and is now out of time. As a result, the exemption, which had an expiration date imposed in the original legislation, will expire on June 30, 2025.

Originally estimated to save Alabama employees working overtime about $40 million a year ended up costing the state education budget approximately $300 million over the first year.

Importance of Keeping Mail Receipts Confirmed by Alabama Tax Tribunal

This appeal involved the denial by the Alabama Department of Revenue of a request for a refund of income tax for 2021.

On May 26, 2023, the Alabama Legislature enacted Act 377 (“the Rebate Act”), which provided a one-time refundable tax credit (“rebate”) to qualified taxpayers. The Rebate Act allotted to “individual taxpayers” who filed an Alabama 2021 individual income tax return “on or before October 17, 2022,” a “one-time refundable income tax credit” of “$150.00 for single, head of family, and married filing separately” taxpayers, and $300.00 for “married filing jointly” taxpayers. This appeal stemmed from the Department’s denial of the rebate allotted by the Rebate Act concerning the Taxpayers.

The Department stated that the Taxpayers did not file their 2021 Alabama individual income tax return until March 11, 2024, well past the October 17, 2022, deadline imposed by the Rebate Act.

At trial, the Taxpayers argued that they filed their 2021 Alabama individual income tax return before the Rebate Act’s October 17, 2022, deadline. Mr. Brewster stated that the Taxpayers filed their 2021 return on April 7, 2022, specifying that the return was signed on April 7, 2022, and then mailed to the Department on April 8, 2022. The Taxpayers provided the certified mail receipt they received from the United States Postal Service when they mailed the return on April 8, 2022. The Taxpayers also provided a copy of the canceled check payable to the Department for their 2021 tax liability, and their bank records that reflected their check was processed by the Department on June 2, 2022, and withdrawn from the Taxpayers’ bank account on June 3, 2022.

Noting that the burden is on a taxpayer to prove that a refund is due, the Tax Tribunal determined the Taxpayers here had met that burden. One key to that decision was the Taxpayers’ ability to demonstrate that the weight of the package mailed belied the Department’s position that the Taxpayers only mailed a check and not their tax return.

To read the decision, click here.

Alabama Supreme Court Rules LLC Not Eligible For Property Tax Break

The Alabama Supreme Court recently ruled that a condominium owned by an LLC is neither a "single-family owner-occupied residential property" for purposes of Art. XI, § 217(a), Ala. Const. 2022, or "residential property" for purposes of § 40-8-1, and thus should be taxed at the higher rate. 

For purposes of ad valorem taxation, § 217(a) divides taxable property that is not exempt by law into four classes. Only two are relevant here. Class II property is defined as "[a]ll property not otherwise classified." Class III property is defined, in pertinent part, as all "single-family owner-occupied residential property." Section 40-8-1, which also governs the classification of property for ad valorem taxes, defines Class III property, as among other things, "residential property." That Code section further defines "residential property," in part, as "[r]eal property, used by the owner thereof exclusively as the owner's single-family dwelling."

The Baldwin County Revenue Commissioner argued, and the Alabama Supreme Court agreed, that the LLC, as a corporate entity, could not occupy or use property as a "dwelling," and, as a result, the condominium could not be classified as Class III property.

The result of being classified as Class II versus Class III property is that a higher tax rate applies.

To read the full case decision, click here.