Alabama Dept. of Revenue v. Cellular Express, Inc., [Ms. CL-2022-0701, May 12, 2023] __ So. 3d __ (Ala. Civ. App. 2023). In a per curiam opinion, the court (Thompson, P.J., and Moore, Hanson, and Fridy, JJ., concur; Edwards, J., recuses) affirms the Jefferson Circuit Court’s order reversing the Tax Tribunal’s determination that Cellular Express, Inc. (“Cellular”), owed sales taxes on funds it had received from customers of Boost Mobile (“Boost”) as prepayments for Boost’s wireless service during the 2009-2012 audit period.
In 2014, the legislature passed an Act declaring that “‘the sale of prepaid wireless service that is not evidenced by a physical card constitutes the sale of a prepaid authorization number’” upon which sales tax is owed. The 2014 Act contained a provision stating that “[f]or transactions that occurred prior to the effective date of this act in which the consumer did not receive from the retailer either an authorization number or a physical card, neither the Department of Revenue nor local tax officials may seek payment for sales tax not collected. This limitation on the authority of the department or local officials shall not apply to audits that began or assessments that were entered prior to the effective date of this act. With regard to such transactions in which sales tax was collected and remitted, neither the taxpayer nor the entity remitting sales tax shall have the right to seek refund of such tax.” Ms. *6.
The court notes “Section 6 exempted some taxpayers from the retroactive application of the 2014 Act while subjecting others, such as Cellular, to its retroactive application because the Department had begun a sales-tax audit or had entered a sales-tax assessment as to them before the effective date of the 2014 Act,” and explains
“‘When a court is called on to consider whether retroactive legislation is constitutional, its focus is on whether the retroactivity of the legislation denies due process. [Monroe v. Valhalla Cemetery Co., 749 So. 2d 470, 473-74 (Ala. Civ. App. 1999), overruled on other grounds, Patterson v. Gladwin Corp., 835 So. 2d 137, 153 (Ala. 2002)] (quoting United States v. Carlton, 512 U.S. 26, 30-31, 114 S. Ct. 2018, 129 L. Ed. 2d 22 (1994)). In Carlton, “the [United States Supreme] Court set forth the test to determine whether retroactive tax legislation denies due process: first, the legislation must be ‘supported by a legislative purpose furthered by rational means,’ and second, the period of retroactivity must be ‘modest.’” Valhalla Cemetery Co., 749 So. 2d at 474 (quoting Carlton, 512 U.S. at 31, 114 S. Ct. 2018).’” Jefferson Cnty. Comm’n v. Edwards, 49 So. 3d 685, 691 (Ala. 2010) (quoting IEC Arab Alabama, Inc. v. City of Arab, 7 So. 3d 370, 374 (Ala. Civ. App. 2008)).
The court holds “[t]he Department has not persuasively argued that subjecting a small number of taxpayers as to whom the Department had begun sales-tax audits or had entered sales-tax assessments before the effective date of the 2014 Act, while exempting other taxpayers who would owe sales taxes if the 2014 Act were applied retroactively to them, is a rational means of clarifying § 40-23-1(a). Therefore, we will not reverse the trial court’s judgment insofar as it determined that Section 6 of the 2014 Act was unconstitutional as applied to Cellular.” Ms. *20.