Transfer of Title Still Critical in Sales Tax Analysis

On September 10, 2010, the Alabama Court of Civil Appeals upheld a circuit court ruling that Boyd Brothers Transportation, Inc. (“Boyd Brothers”) was not liable for Alabama sales tax on transactions involving 70 tractor trailer rigs. The circuit court had previously overturned Chief Administrative Law Judge Bill Thompson's conclusion that Boyd Brothers did owe the tax alleged by the Alabama Department of Revenue ("ADOR").

Boyd Brothers operates a long-haul trucking business. It entered into individual lease-purchase agreements with drivers involving 70 trucks owned by Boyd Brothers. Each agreement provided that the driver would take possession of the truck and lease that truck from Boyd Brothers
by making monthly payments. The facts showed that the monthly payments were determined by dividing the fair market value of the truck by the number of months in the agreement period.

After the driver made all of the monthly payments, the driver had the option of purchasing the truck for a payment of $1. In a critical point, Boyd Brothers retained title to the trucks while the monthly payments were being made by the drivers. Of the 70 drivers who entered into the agreements with Boyd Brothers, all but four of them defaulted and did not purchase the trucks in question. ADOR alleged that the transactions reflected in the agreements constituted conditional retail sales of the trucks that should be subject to sales tax and assessed Boyd Brothers for that tax.

The Court of Civil Appeals determined that the issue of whether these were conditional sales was not necessary to determine taxability in the case. Even if the agreements were conditional sales agreements, the Court reminded ADOR and readers that “Alabama sales tax applies only to sales that are ‘closed’ within the State.” Readers will recall that under Alabama law, a transaction is not closed until title is transferred by the seller to the purchaser. In this case, no title was transferred in all but four of the transactions in question.

The Court held that “[b]ecause there was no transfer of title, there was no completed sale; therefore, no sales taxes are due regarding transactions stemming from those 66 agreements.”

With regard to the remaining four transactions, in which title was transferred to the drivers, the Court referenced Alabama's casual or isolated sales rules. The Court noted that under ADOR regulations, no sales tax is due on casual or isolated sales by persons not engaged in the business of selling. It went on to note, however, that an exception to the casual sale exemption exists for the sale of automotive vehicles and trucks. Therefore, the Court held that the casual sale exemption did not apply in this case.

However, the Court noted that under Alabama law, sales tax is levied against the purchaser of motor vehicles and trucks when the seller is not a licensed dealer. As Boyd Brothers was not a licensed dealer, the Court concluded that the "statute levies a sales tax against the drivers who bought the four trucks, not against Boyd Brothers.”