State of Alabama Department of Revenue v. AAA Cooper Transportation & Action Truck Center, Inc.

Citations: 160 So. 3d 286; 2014 Ala. Civ. App. LEXIS 12; 2014 WL 185460Docket: 2120516

Court: Court of Civil Appeals of Alabama; January 16, 2014; Alabama; State Appellate Court

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The Alabama Department of Revenue and Commissioner Julie P. Magee appeal a Houston Circuit Court judgment favoring AAA Cooper Transportation and Action Truck Center, Inc., which granted a refund of $965,596.79 in sales taxes. AAA and Action sought this refund for sales taxes collected from July 2004 to August 2007 on 1,055 tractors sold by Action, of which 835 were assigned to terminals outside Alabama. AAA argued that these 835 tractors were exempt from Alabama sales tax under the 'common-carrier' exemption. 

The trial court ruled that the sale of the tractors did not close until delivery to out-of-state terminals, thereby occurring outside Alabama and exempt from sales tax. The Commissioner and Department's motion to alter or vacate this judgment was denied, leading to their appeal filed on March 22, 2013. The parties stipulated that both AAA and Action are Alabama corporations, all tractors were sold and initially prepared in Alabama, and that no drive-out certificate was obtained for them. AAA operates 83 terminals across fourteen states and assigned the 835 tractors to these out-of-state locations.

During the Refund Period, AAA paid $965,596.79 in Alabama sales tax for 835 tractors assigned to out-of-state terminals, which is the amount contested. Evidence presented included testimony from AAA's CFO, Steve Roy, who clarified that AAA is a federally certified common carrier. He stated that after purchasing the tractors from Action, they were temporarily held at AAA's facility in Dothan before being assigned to either Alabama or out-of-state terminals. Once assigned, AAA drivers transported the tractors to their ultimate destinations.

Carolyn Thornton, Action's business manager, testified that Action does not collect Alabama sales tax on trucks delivered out of state under common carrier status and noted that this practice had never faced challenge from the Department. She provided an example of a prior tax-exempt sale to a Texas buyer, indicating that Action shipped the truck via a third-party carrier without charging Alabama sales tax. Thornton also stated that Action acted as the agent for AAA and secured Alabama titles for the purchased tractors, but acknowledged that AAA did not complete 'drive-out' certificates as required by Alabama law, which would have allowed AAA to avoid sales tax.

David Andrew Guiler, AAA’s tax manager, confirmed his responsibility for ensuring proper sales tax payments and supervised the refund petition process. He prepared a detailed spreadsheet of the tractors purchased, including identification numbers, purchase details, and tax amounts. Guiler acknowledged that vehicles titled in Alabama are not eligible for the drive-out exemption and confirmed that the tractors were titled to AAA in Alabama. He noted that the tractors received an 'IRP' tag, which allows common carriers to register in a base state for travel across multiple states, and admitted that the purchase invoices did not indicate any intent to ship the tractors out of Alabama.

AAA did not pay a use tax on the tractors in question, asserting that it had already paid the required sales tax to Alabama. Vicki Gardino from the Department testified regarding the refund request from AAA, confirming that the tractors were sold by an Alabama retailer to an Alabama trucking company, delivered, and titled in Alabama, with no drive-out certificates executed. Consequently, the Department denied the refund request.

On appeal, the Commissioner and the Department argued that the trial court incorrectly found that the sale of tractors to AAA constituted closed transactions within Alabama, mischaracterized AAA's role as a common carrier, misinterpreted tax exemptions, and deemed certain tax provisions ambiguous. The review standard for these legal interpretations is de novo.

Section 40-23-2(4) imposes a 2% sales tax on retail sales of automotive vehicles in Alabama. The trial court referenced case law stating that a sale is considered closed when title transfers to the purchaser, which occurs upon physical delivery. The trial court concluded that the sale occurred in Alabama, establishing a tax obligation unless a clear exemption applies.

The trial court examined two potential sales tax exemptions, including the drive-out exemption, which exempts sales of vehicles intended for registration outside Alabama if removed within 72 hours. The court ruled that this exemption did not apply since the tractors were registered and titled in Alabama and no drive-out certificates were issued. The appellate court concurred with the trial court's reasoning, affirming the inapplicability of the drive-out exemption.

The trial court examined the common-carrier exemption under Ala. Code 1975, § 40-23-1, which defines terms related to sales tax statutes. It concluded that the statute intended to exempt trailers and trucks purchased in Alabama for use out of state and determined that the Department collected taxes in error. Additionally, the court found the exemption was open to two interpretations and ruled in favor of AAA. However, the reviewing authority disagreed, citing established rules that tax exemptions must be strictly construed against the taxpayer and in favor of the right to tax. It emphasized that a party seeking an exemption bears the burden of proof and that any ambiguity in legislative intent favors the taxing authority. The authority interpreted § 40-23-1(a)(5) as stating that a sale is completed when title transfers from the seller to the purchaser or their agent, with a common carrier considered an agent for this purpose. Under Ala. Code 1975, § 7-2-401(2), title passes when the seller completes delivery unless otherwise agreed. The facts confirmed that the tractors were sold by an Alabama retailer to AAA and delivered in Alabama, meaning the sale was completed in-state, fitting the definition of a closed-sales transaction under the law.

AAA claims it fulfilled the role of a common carrier in accepting 835 tractors from Action for delivery to an out-of-state purchaser, asserting that this role exempts the transactions from Alabama sales tax. AAA contends that the delivery process began when it accepted the tractors in Dothan, which it interprets as the point where the sales transactions concluded, thus arguing that the sales occurred out of state. However, this interpretation contradicts the clear intent of § 40-23-1(a)(5), which stipulates that the sale is considered closed when Action delivers the tractors in Alabama, regardless of AAA's subsequent assignment of the tractors to out-of-state terminals. 

The Administrative Law Division's prior ruling in Rohr supports this view, stating that an Alabama common carrier cannot accept delivery of products from an in-state seller intending to deliver them to itself outside Alabama to evade sales tax obligations. The Rohr decision highlighted that since delivery occurred in Alabama, the transactions were considered closed there, making Alabama sales tax applicable. Furthermore, it referenced the case of Kopac International Corp., where similar issues arose regarding whether a common carrier's delivery of goods outside Alabama affected the closing of sales and tax liability. Ultimately, both cases emphasize that sales completed within Alabama are subject to sales tax, irrespective of the delivery arrangements made afterward.

Covan qualifies as a 'common carrier' distinct from Coleman American Moving Services, Inc., which purchased and received the boxes. The ALJ determined that Covan fulfilled its role as a common carrier during the delivery of boxes to Coleman American, meaning sales were not finalized until delivery occurred outside Alabama, per § 40-23-1(a)(5). However, this ruling specifically applies to boxes picked up by Covan from Kopac’s facility in Montgomery. The audit also included sales delivered by third-party carriers to Alabama, which were deemed taxable upon delivery in-state—a point Kopac did not contest.

In contrast, Action's delivery of tractors to AAA, an in-state purchaser, constituted a different scenario. Unlike Kopac, there was no evidence that AAA acted as a common carrier delivering to an out-of-state purchaser. The evidence indicated that AAA accepted delivery of the tractors in its capacity as purchaser before assigning some to its out-of-state locations. AAA’s reference to the Alabama Supreme Court’s decision in Ex parte Dixie Tool & Die Co. was deemed incorrect, as that case involved goods placed with third-party common carriers for out-of-state delivery, and the court addressed the timing of when goods leave the state for tax purposes.

The court established that a state may tax property intended for out-of-state shipment unless it has commenced final transport. Goods are no longer part of the state's property general mass once they are shipped or given to a common carrier for out-of-state transport. The Commerce Clause protections begin when goods start their final journey out of Alabama.

Sales at issue occurred when goods were delivered to an interstate carrier, categorizing them as interstate commerce and exempt from Alabama sales tax under § 40-23-4(a)(17). This was distinguished from the case of Ex parte Dixie Tool, where sales were not considered closed for tax purposes until delivery to out-of-state purchasers. In contrast, the seller, Action, delivered tractors directly to AAA, an in-state buyer in Dothan, indicating that those sales were intrastate. AAA's subsequent assignment of some tractors to out-of-state terminals after accepting delivery does not qualify them as a common carrier's actions for tax purposes. Consequently, the sales in question were completed in Alabama and are subject to sales tax under § 40-23-2(4). The court concluded that AAA’s purchase was taxable, denied any refund for sales taxes paid, reversed the trial court’s judgment, and remanded for consistent judgment entry.

Pittman, Thomas, and Donaldson, JJ. concurred, while Thompson, P.J. concurred in the result without further comment. Under Rule 25(d) of the Alabama Rules of Civil Procedure, Magee was automatically substituted for Tim Russell as commissioner of the Department effective January 18, 2011. The discussion pertains to the "drive-out" exemption under Section 40-23-2(4) of the Alabama Code, which exempts from sales tax the sales of trucks and trailers that are registered or titled outside Alabama, provided they are exported or removed from the state within 72 hours for first use outside Alabama. This was supported by the case Boyd Bros. Transp. Inc. v. State Dep’t of Revenue and the administrative ruling in Whatley Contract Carriers, LLC v. State of Alabama Department of Revenue.

The International Registration Plan (IRP) is referenced, which mandates that commercial vehicles must be registered in a single base state for apportioning fees among states where the vehicle operates. It was agreed that while an IRP tag is relevant for use tax determinations, it holds little relevance for sales tax assessments. The Department asserted that a statute of limitations had expired, indicating that AAA would not have liability for unpaid use taxes in other states for the period in question, thereby potentially resulting in a windfall from any sales tax refunds.

The record lacked evidence that the tractors were removed from Alabama within the requisite 72 hours, and AAA acknowledged that its drivers operated the tractors out of state, calling into question the fulfillment of the "first-use" requirement. However, since the tractors were titled in Alabama and no drive-out certificates were executed, these factors were deemed unnecessary for consideration. Additionally, AAA stipulated that the drive-out exemption did not apply. Section 40-23-4(a)(17) of the Alabama Code exempts certain sales from taxation based on federal or state constitutional prohibitions.