The Alabama Court of Civil Appeals has upheld the decision of the Montgomery County Circuit Court that Scholastic Book Clubs, Inc. was not subject to Alabama use tax during the assessment period. The Circuit Court had overturned the previous decision of the Alabama Tax Tribunal finding liability for Alabama use taxes.
The facts in the case are similar in nature to other Scholastic Book Clubs cases throughout the country. In this decision, it is important to note that this is not a nexus decision, as one might assume. First, it is notable that the Court focused specifically on the years at issue in the contested assessment, which were all pre-Wayfair. Second, a careful reading of the opinion could lead one to conclude that the Court might have rendered a different decision had the Alabama Department of Revenue made some different arguments. Instead, the Court concluded that the Department failed to present evidence that Scholastic Book Clubs’ activities subjected it to a statutory obligation to collect and remit Alabama use tax. Thus, the Court determined that it did not need to address the issue of nexus.
Importantly, the Court specifically noted that it was not ruling on the “permissible reach of Alabama’s taxing authority under Wayfair….” It also expressly stated that it was not ruling on the impact of the enforcement of the Department’s nexus rule beginning on October 1, 2018, which arguably would impose a tax obligation on Scholastic Book Clubs prospectively. Those battles remain to be waged, no doubt. However, the Court avoided the temptation to wade into those issues given the facts and law before it.
In a post-Wayfair environment, given the facts in this case, it is entirely possible that the outcome could be different.
To read the Court's decision, click here.