from Elmore Circuit Court (CV-15-900208)
Alabama Department of Revenue ("the Department")
appeals from a judgment of the Elmore Circuit Court
("the circuit court") finding that sales of prepaid
authorization numbers for wireless services on cellular
telephones were not subject to the sales tax at the time the
sales were made and ordering the Department to refund the
amount of taxes paid. Because we determine that the sales
were subject to the sales tax, we reverse the judgment and
remand the cause for further proceedings.
and Procedural History
Lee Downing was the sole member of Downing Enterprises, LLC
("the LLC"), a business that sold, among other
products, prepaid authorization numbers allowing access to
wireless services on cellular telephones. On December 28,
2011, the Department sent Downing a final assessment of taxes
against him, addressing Downing as "the sole member of
Downing Enterprises, LLC, a disregarded entity." The
final assessment stated that Downing owed $18, 617.86 in
taxes plus interest for the sales of the prepaid
authorization numbers from September 1, 2008, through June
30, 2011. On August 24, 2013, a petition for a refund was
filed with the Department. In the petition, the petitioner's
legal name is listed as "Patrick Lee Downing," and
the entity that Downing was "doing business as" is
listed as "Downing Enterprises, LLC." The
Department denied the petition for a refund in a letter
addressed to the LLC and its counsel.
appealed the denial of a refund to the Department's
Administrative Law Division. See § 40-2A-7(c), Ala. Code
1975; § 40-2B-2(g)(2)(a), Ala. Code 1975. The LLC argued
that the Department based its tax assessment on statutory
provisions that were unconstitutional. The recently created
Alabama Tax Tribunal ("the Tax Tribunal") heard the
appeal. On June 2, 2015, the Tax Tribunal entered
a final order affirming the denial of the request for a
refund based on § 40-23-1(a)(13), Ala. Code 1975, as
amended by Act No. 2014-336, Ala. Acts 2014 ("the 2014
Act"), effective July 1, 2014. In its order, the Tax
Tribunal referred to the LLC as the taxpayer and stated that
it did not have jurisdiction to rule on the constitutional
challenges but that those challenges could be pursued in an
appeal to the circuit court.
19, 2015, Downing, as "the sole member of Downing
Enterprises, LLC, a disregarded entity," filed an appeal
of the Tax Tribunal's final order to the circuit court,
arguing that the 2014 Act did not have retroactive effect and
raising constitutional challenges to § 40-23-1(a)(13)
and the 2014 Act. On September 5, 2017, the circuit court
conducted a trial. At the trial, Downing testified that he
had sold prepaid authorization numbers to access wireless
services on cellular telephones.
September 14, 2017, the circuit court entered a judgment in
favor of Downing, ordering the Department to reimburse him
for the amount he had paid in response to the final tax
assessment. In the judgment, the circuit court found that the
sales of prepaid authorization numbers were not subject to
the sales tax at the time that those sales were made.
October 26, 2017, the Department filed a notice of appeal to
this court. Downing did not file an appellee's brief on
appeal. This court has jurisdiction over the appeal pursuant
to § 12-3-10, Ala. Code 1975.
court requested that the parties submit letter briefs
addressing any jurisdictional issues resulting from the
discrepancy in the filings made by Downing as an individual
and the filings made by his business, the LLC, in the
underlying proceedings. See Matthews v. City of
Mobile, 182 So.3d 547, 549 (Ala. Civ. App. 2014)
("[T]his court must take notice of jurisdictional issues
ex mero motu.").
letter brief, the Department contends that the Tax Tribunal
lacked jurisdiction to consider the appeal of the denial of
Downing's petition for a refund and that, therefore, the
circuit court lacked subject-matter jurisdiction over the
appeal of the Tax Tribunal's order. "A judgment
entered by a tribunal that lacks subject-matter jurisdiction
is void." Alves v. Board of Educ. for
Guntersville, 922 So.2d 129, 134 (Ala. Civ. App. 2005).
"[A] void decision or judgment will not support an
appeal ...." Matthews, 182 So.3d at 551.
"Judgments entered without subject-matter jurisdiction
can 'be set aside at any time as void, either on direct
or on collateral attack.' International
Longshoremen's Ass'n v. Davis, 470 So.2d 1215,
1217 (Ala. 1985), aff'd, 476 U.S. 380, 106 S.Ct. 1904, 90
L.Ed.2d 389 (1986). In Sustainable Forests, L.L.C. v.
Alabama Power Co., 805 So.2d 681 (Ala. 2001), our
supreme court stated:
"'"'Unless the trial court has before it a
justiciable controversy, it lacks subject matter jurisdiction
and any judgment entered by it is void ab
initio.' Ex parte State ex rel. James, 711
So.2d 952, 960 n. 2 (Ala. 1998)(citing Stamps v.
Jefferson County Bd. of Educ., 642 So.2d 941, 945 (Ala.
1994); Luken v. BancBoston Mortg. Corp., 580 So.2d
578 (Ala. 1991); Wallace v. Burleson, 361 So.2d 554,
555-56 (Ala. 1978))."'
"805 So.2d at 683 (quoting Hunt Transition &
Inaugural Fund, Inc. v. Grenier, 782 So.2d 270, 272
Alves, 922 So.2d at 134.
Department argues that the Tax Tribunal lacked jurisdiction
over the proceedings before it because, it says, the LLC did
not have standing to appeal to the Tax Tribunal the denial of
the petition for a tax refund that it asserts was filed by
Downing. The Department asserts that only Downing was the
proper party to appeal the denial of that petition for a
refund. In his letter brief, Downing argues that no
jurisdictional impediment precluded the underlying
proceedings because, he says, for tax purposes, there is no
distinction between him and the LLC.
"a corporation is a distinct entity, to be considered
separate and apart from the individuals who compose it
...." Moore & Handley Hardware Co. v. Towers
Hardware Co., 87 Ala. 206, 210, 6 So. 41, 43 (1889). The
Department, however, acknowledges that the LLC has only one
member, Downing, and that a single-member LLC is treated as a
"disregarded entity" for state-tax purposes. For
state-tax purposes, single-member LLCs "are disregarded
as entities separate from their sole owner, the
taxpayer," if the company is also disregarded for
federal-income-tax purposes. Sustainable Forests, LLC v.
Alabama Dep't of Revenue, 80 So.3d 270, 272 (Ala.
Civ. App. 2011). See § 40-18-1(9), Ala. Code 1975
(defining a "disregarded entity" for
state-income-tax purposes as "[a]ny entity which is
disregarded for federal income tax purposes"); and
§ 40-14A-1(g), Ala. Code 1975 (defining a
"disregarded entity" for the purpose of state
business-privilege and corporation-shares taxes as "[a]
limited liability company that is disregarded for purposes of
federal income tax ..."). Regarding federal income
taxes, 26 C.F.R. § 301.7701-2(a) provides, in relevant
part: "A business entity with only one owner is
classified as a corporation or is disregarded; if the entity
is disregarded, its activities are treated in the same manner
as a sole proprietorship, branch, or division of the
owner." Because the LLC meets the definition of a
disregarded entity for federal-income-tax purposes, the LLC
is disregarded as a separate entity and its sole member,
Downing, is treated in the same manner as a sole proprietor
for state-tax purposes.
Department's Revenue Procedure 98-001(3)(a) provides:
"For purposes of the taxing statutes in Title 40, Code
of Alabama 1975, all LLCs which, pursuant to Act 97-920,
include both single member and multiple member LLCs organized
on or after January 1, 1997, will be classified as they are
classified for federal income tax purposes under the Internal
Revenue Service's 'check-the-box'
§ 40-2A-5(a), Ala. Code 1975 (regarding authority to
issue revenue rulings and revenue procedures). Therefore, the
Department is bound to consider the LLC as a disregarded
entity for the purposes of the procedure for ...