An administrative law judge of the Alabama Department of Revenue has ruled that the state's use tax applied to a vehicle originally purchased in Alabama by an Alabama domiciled interstate carrier, immediately removed from the state and registered elsewhere, but subsequently brought back to conduct interstate movements partly within Alabama.

Alabama law specifies a sales tax exemption for a vehicle that although bought in the state is taken from Alabama within 72 hours for titling, registration and first use outside the state.

There is no specific, corresponding exemption from the use tax for such a vehicle.

Generally, Alabama imposes a sales tax of 2 percent on motor vehicle sales. In this case, the vehicles at issue were titled and registered in Oklahoma, where, under rules current in that state at the time, the carrier was allowed to base for International Registration Plan purposes although it had no Oklahoma location of its own. Thereafter, the carrier operated the trucks in more than 40 states, but 18 percent to 20 percent of the fleet miles were in Alabama.

The state sought to impose use tax pursuant to an audit. The carrier argued that the sales and use tax laws were complementary, so that the sales tax "drive-away exemption" implied a use tax exemption as well for these vehicles. The administrative law judge disagreed, saying that despite contrary Alabama case law, since the two taxes have somewhat different purposes, it could not be assumed that an exemption for one automatically applied to the other.

The judge also found although the department's prior practice, as well as its many and continued explicit statements, was to the contrary in similar circumstances, its effort to tax the carrier did not violate the latter's due process.

The case – Whatley Contract Carriers LLC vs. Department of Revenue, docket no. U. 03-372 – was decided March 23, 2004. It has been appealed to Alabama District Court. The department has delayed hearings in a number of similar use tax cases against interstate carriers pending the outcome of this one.

--by Robert C. Pitcher, State Laws Newsletter

Reprinted with permission of Robert C. Pitcher