Alabama, Exemption for Materials Used as Fill

A provision in the uniform severance tax (Ala. Code § 40-13-53(b)(2)) exempting “materials when severed and used for fill by an operator, producer or any other person” applies to all materials that are severed and used for fill, whether or not the user severed the materials. The taxpayer must keep records showing that its sales were exempt. Though the taxpayer kept records of its sales during the audit period (October 2004 through December 2007), it had not kept records verifying that the purchasers intended to use the severed materials as fill. The Department of Revenue notice sent to the taxpayer's owner on July 19, 2004 stated that the severance tax did not apply to severed materials used for fill, and the taxpayer's attorney wrote a letter to the taxpayer confirming that the taxpayer was not subject to tax. Given these facts, it is understandable that the taxpayer did not keep records showing what materials it sold were used as fill. Thus, the taxpayer was allowed to gather affidavits, potential witnesses, or other evidence verifying that the severed materials were used as fill. The administrative law judge rejected the Department's claims that “[a]nyone can get someone to sign an affidavit” and that there is no way to challenge the affidavits. The affidavits were sworn and attested to by a notary public and the affiants knew that the taxpayer was involved in a dispute with the Department. It is doubtful that the affiants would falsely attest to something under oath in writing that the Department could later investigate as to its truthfulness. In addition, the Department could contact the affiants in person or by phone to verify the accuracy of the affidavits. The affidavits, however, do not indicate the amount of materials used, just that all materials purchased were used for fill. The taxpayer must notify the Administrative Law Division by April 13, 2012 if it has records, information, or other evidence establishing the amounts purchased, so that the sales qualifying for exemption during the audit period can be determined. (L&J Dirt, Inc. v. Ala. Dept. Rev., Admin. Law Div., Dkt. No. MISC. 10-823, 03/15/2012 (preliminary order).