Alabama Tax Tribunal Interprets Refund Limitations Statute

State procedures for obtaining refunds of sales tax can be difficult to navigate for both purchasers and sellers. A recent decision of the Alabama Tax Tribunal involving the statute of limitations for refunds reasonably interprets the limitations statute in a manner that would otherwise have deprived a purchaser of tax refunds to which it was entitled. Alatrade Foods, Inc. v. Alabama Dep’t of Rev.,Docket No. S.25-0013-RC (Ala. Tax Trib. Dec. 10, 2025).

The Facts: Alatrade Foods, Inc. (“Alatrade”) engages in the business of processing chickens in several localities in Alabama. As part of its processing operations, Alatrade uses quantities of water, both to cut the chickens with high-pressure water and to rinse and marinate them. Over a three-year period, Alatrade purchased water from two Alabama water utilities and paid Alabama utility gross receipts taxes (“UGRT,” in effect, a sales tax) to the two utilities.

It was later determined that Alatrade’s purchases of water were exempt from the tax. Alatrade requested tax refunds from the Alabama Department of Revenue (the “Department”) of the taxes it paid to the utilities. The Department granted the refunds for two periods (April 1, 2022–March 31, 2024) but denied refunds for an earlier period (April 1, 2021–March 31, 2022), on the grounds that the latter claim was untimely. The Department acknowledged that the water utilities had timely filed all required UGRT returns.

Alabama law requires that refund claims be filed “within (i) three years from the date the [UGRT] return was filed; or (ii) two years from the date of payment of the tax, whichever is later, or if no return was timely filed, two years from the date of payment of the tax.” Ala. Code § 40-2A-7(c)(2)a.

The dispute resulted from a change in the Alabama law made in 2018 that for the first time allowed consumers/purchasers to claim refunds without requiring that the claim be jointly filed with the sellers. As a result of the enactment, refund claims could thereafter be filed directly by the consumer/purchaser who paid the tax.

The Department took the position that the two-year statute of limitations applied, asserting that the three-year limitations period was applicable only to taxpayers that filed a UGRT return. Alatrade argued that “the return” referred to in the statute was the return that the water utilities were required to file and did timely file. The Alabama Tax Tribunal (the “Tribunal”) was tasked with deciding which of the two statutory interpretations was correct.

The Decision: The Tribunal found that § 40-2A-7(c)(2)a was susceptible to either conclusion and, thus, was ambiguous. This meant that the statute should be interpreted to advance the legislative purpose in a workable and fair manner. The statute of limitations presupposed that the person requesting the refund was the person responsible for filing a tax return. But following the enactment in 2018, refund requests could be made either by the consumer/purchaser or by the seller. This change was meant to benefit taxpayers, particularly consumers/purchasers who had previously depended on the cooperation of the seller in filing a joint refund claim. 

The Tribunal was troubled that a statute meant to benefit taxpayers should, with respect to the third most recent year, be susceptible to a higher and more intricate hurdle for consumers/purchasers, but also for sellers (who, if they filed refund claims, had to first refund the tax to the purchaser and then wait for the Department to decide what to do). Under the Department’s interpretation, a sharp distinction would be drawn, with consumers more easily receiving refunds of taxes paid within the past two years but subject to an almost insurmountable hurdle for refunds of taxes paid between two and three years earlier. The Tribunal found no “rationale, logic, or public policy purpose in making such a seemingly arbitrary and consequential distinction,” which caused the refund statute to become a “trap for the unwary.” The Tribunal therefore reversed the partial refund denial, interpreting the reference under the three-year statute of limitations to “the returns” to the returns timely filed by the water utilities.

Observation: The Alabama Tax Tribunal, which has a long history of rendering thoughtful and even-handed decisions, reached the right conclusion to avoid a result that it concluded the legislature could not possibly have intended. Some states avoid this problem by having the three-year limitations period run from the date the sales tax collected was payable by the seller to the state or locality by law, obviating the need for the purchaser to determine whether the seller timely filed its returns.