John Sharp
al.com
(TNS)
Alabama’s county commissions issued a call to action at their summer conference in Orange Beach: protect the state’s internet sales tax system.
It was also a bit of a warning shot to the mayors of Alabama’s largest cities. The leadership umbrella for the state’s 67 counties said that if the 8-year-old Simplified Sellers Use Tax (SSUT) is tinkered with, the alternative could be disastrous.
They point to the estimated $850 million in annual revenues the SSUT brings in each year to support the state, city and county governments.
This amount continues to grow each year as more shoppers migrate to online purchasing.
“I want to go out as soldiers and talk to the leaders in your community and make them understand that we cannot dismantle this program,” said Sonny Brasfield, executive director with the Association of County Commissions of Alabama (ACCA), during a presentation Wednesday. The annual ACCA gathering drew an estimated 750 county officials to the Perdido Beach Resort in Orange Beach.
“Dismantling it is an absolute guarantee of disaster,” Brasfield said. “There is no question about that. Dismantling this program is not an option for this state.”
Lawsuit looms
His comments come after the City of Tuscaloosa, the Tuscaloosa City School District and the City of Mountain Brook filed a lawsuit on Aug. 12, claiming the SSUT program is unconstitutional, should be scrapped and replaced with a system that does not short-change the state’s largest cities with substantial revenue losses each year.
Under SSUT, adopted in 2015, a flat 8% tax is applied to online sales. It differs from Alabama’s conventional sales tax rate on in-store purchases at brick-and-mortar stores, which varies by municipality and county. Tuscaloosa, for instance, taxes in-store purchases at 10%.
The distribution formulas are also different, which Tuscaloosa and other mayors in larger cities say is unfair because they claim a majority of online sales are conducted in bigger communities.
Under SSUT, half of the amount – 4% — goes to the state with the remaining 4% going to cities and counties. Of that, 1.6% goes to the counties while 2.4% goes to municipalities in a formula that is also prorated based on Census population.
The conventional sales tax sends 4% to the state. In Tuscaloosa, 3% goes to the county, which is then divided up to various county and city schools. The balance, or 3%, goes to the City of Tuscaloosa.
The city claims it is projected to lose $14.6 million in local tax revenues through a calculation that takes the difference between the portion of the SSUT that is distributed to the city versus the approximate amount of revenue Tuscaloosa would get if the internet sale was taxed at a conventional sales tax rate.
The Tuscaloosa lawsuit names Vernon Barnett, the commissioner of the Alabama Department of Revenue (ADOR), as the defendant. His agency is charged with administering the SSUT program, and he is urging county leaders to “close ranks” and “protect this funding source.”
The biggest concern is that if the SSUT is undone through the judicial system, an alternative program could be implemented that includes taxing internet sales through conventional sales taxes applied by hundreds of jurisdictions throughout Alabama.
“We are the most complicated state in the country where sales tax collection and enforcement is concerned,” Brasfield said. “The 67 counties cannot survive this (if SSUT is removed). Most of the cities cannot survive it.”
‘Model’ program
Barnett was one of the speakers during the ACCA conference. Also joining the conference was Maine-based attorney Martin Eisenstein, who was a legal counsel in the landmark South Dakota v. Wayfair decision by the U.S. Supreme Court in 2018. The decision enabled states to tax remote sellers on internet purchases and bolstered the ability of state and local governments to collect taxes from online sales.
Eisenstein called the SSUT program a “model” for taxing internet sales. He also said any potential tinkering of the program could lead to future legal problems, as what has been experienced in Louisiana and Colorado. In Louisiana, specifically, Eisenstein said the state’s approach has prevented municipal and county governments from receiving anything from internet sales taxes.
“While Alabama has collected $4.2 billion, other states are struggling to collect revenues including Louisiana, Illinois, Colorado, and elsewhere,” he said. The SSUT program, since it collected $4.3 million in fiscal year 2016, has brought in a total of $4.2 billion in new revenues.
“It’s a trophy piece for model legislation,” Eisenstein said, emphasizing that the tax is simple for retailers to use and does not place an undue burden toward remitting taxes to multiple government jurisdictions like a conventional sales tax would do.
The SSUT program is voluntary, meaning internet retailers are not required to sign up. The threshold for SSUT participation in Alabama requires a company to conduct $250,000 in sales within the state per year.
Said Barnett, “I really do believe it’s brilliantly designed for it to be very simple and very easy. That’s why we have so many internet sellers signing up to participate in the SSUT. It’s been a remarkable success.”
Transparency, change
Tuscaloosa officials, however, are frustrated over what they say is a lack of transparency and ability to audit the SSUT program to determine how actual sales are being delivered to taxing jurisdictions.
Barnett, during his remarks at the ACCA conference, said his agency does not release tax information on individuals or big corporation. He said the agency’s stance is for “strict confidentiality,” adding that it’s no one’s business “to know what I paid and had shipped to a house.”
“There is a lot of talk of the data we collect and that we house in Alabama,” Barnett said. “We do not have destination sales in Alabama. We at the department do not collect that data. We do not ask for data that is not relevant to tax enforcement.”
Maddox, in a statement, said he has been frustrated with a lack of information his city would like to have to better understand how SSUT affects them.
“For over eight years, all we have asked for is transparency and the right to keep what is generated by our local businesses in our respective communities,” he said. “We have asked for data and transparency. We have sought, offered and worked toward solutions with all parties, but to no avail. Regrettably, for schools, police and fire departments and small business owners, it appears all the opposition has to offer is fear.”
Tuscaloosa is concerned that ADOR is exceeding its legal authority in deeming qualified entities as participants in the SSUT. The lawsuit cites companies like Amazon, Walmart, and grocery stores like Kroger as example of entities that are qualified to tax at the flat 8% SSUT rate, when they already have a physical presence in the state and should be taxed at the conventional sales tax rates.
Barnett said that ADOR has a “robust auditing system” and he believes that every company that should be participating in the SSUT program is currently doing so.
The Tuscaloosa lawsuit also cites DoorDash, UberEats, Birmingham-based Shipt and other food delivery operators who also pay the lower SSUT tax. Tuscaloosa and other cities claim these companies have a physical presence in the cities they operate, including employees, trucks and stores where products are picked up and delivered. As such, they argue the companies should pay conventional sales taxes to the state and local governments.
Efforts to change the SSUT law in Alabama have not gone far in the Legislature. Two years ago, a proposal that would have increased the tax rate to 9/5%, and funnel more money to the larger cities, died.
Brasfield said he doesn’t anticipate any new legislation advancing next spring.
Barnett said the program can be “tweaked,” but urged caution before making major changes to it.
“The principles and foundations and structures of it, we do know it is constitutional,” he said. “We know it works, and we do not want to mess with that. If we do, we’ll wind up in a similar situation as our friends in Louisiana … which means nothing will get distributed. None of us wants that. It would crush the General Fund, and crush most of the cities and damage the counties as well, tremendously.”
©2025 Advance Local Media LLC. Visit al.com. Distributed by Tribune Content Agency, LLC.
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