Tuscaloosa’s Battle For Fair Online Tax Revenue Heats Up
Tuscaloosa's longtime talked about lawsuit against the State of Alabama over the way online sales tax revenues are distributed is now a reality. The city and the Tuscaloosa City School System joined in the lawsuit against Vernon Barnett, the Commissioner of the Alabama Department of Revenue.
Mayor Walt Maddox argues that the current tax law is depriving Tuscaloosa and other municipalities across the state of millions of dollars that could bolster city services such as school, public safety and roads.
A 2018 U.S. Supreme Court ruling in a South Dakota case allows states to tax online sellers with a substantial connection to the state. The law suit by the City of Tuscaloosa and Tuscaloosa City Schools alleges Alabama has not updated its Simplified Sellers Use Tax (SSUT) to take that ruling into consideration and it is costing cities dearly.
"SSUTS are complicated, its hard to explain," Maddox told reporters during a recent meeting of city officials from across the state at the Tuscaloosa River Market. "But it none-the-less is probably the most important issue facing municipalities in Alabama."
Maddox advised mayors to learn more about the shortcomings of SSUTs and talk about it with their constituents and ultimately the Alabama Legislature, which passed the SSUT in 2016.
The SSUT enables eligible sellers (from outside Alabama with more than $250,000 in retail sales) to voluntarily collect, report, and remit a flat 8% sellers use tax on all sales made into Alabama. This is intended to simplify sales tax collection for businesses, particularly remote sellers.
Proceeds from the SSUT are distributed between the state and local governments. According to the Alabama Retail Association, since 2019 the distribution has been as follows:
- 50 percent to the state. Of that, 75 percent goes to the General Fund; 25 percent to the Education Trust Fund.
- 50 percent to the cities and counties. Of that, 60 percent goes to the cities and 40 percent to the counties. The local governments’ distribution is shared proportionally by population.
Why the Lawsuit?
In a press release by the city, Maddox explained the suit, “This lawsuit is necessary to protect the revenue Tuscaloosa has earned and to safeguard our schools, first responders, and small businesses that rely on local dollars staying in the community where they were generated.”
Tuscaloosa City Schools Superintendent Dr. Mike Daria explained why the school system joined the suit, "Local dollars should stay local—supporting our educators, strengthening our classrooms, and ensuring our schools continue to make strong progress for our children."
With shopping trending aware from brick and mortar stores in cities to online, it is becoming more difficult to fund city services with tax dollars being drained from city coffers.
The Suit Does Have It's Detractors
Former Tuscaloosa County and now Hale County Commissioner Don Wallace wrote in an opinion piece on the 1819 News website, "...it is my belief that there is a fundamental misunderstanding of the SSUT system. Further, there seems to be a callous disregard for the problems a vast majority of our county governments and small municipalities face."
In that article, Wallace claims taking any SSUT money away from counties, especially poor rural counties, would have a devastating impact.
"These SSUT distributions, based on the current models, have been a lifeline for many of Alabama’s municipalities and counties," he wrote. "I would also remind the Big 10 Mayors, that their efforts to strip money away from their local county governments could have negative impact on their citizens as well."
Failed Increase
Last year Rep. Chris England (D-Tuscaloosa), introduced legislation that would have raised the SSUT rate from 8% to 9.25%. The increased tax would have been distributed to the Education Trust Fund; the General Fund; local boards of education, and counties and municipalities.
England pointed out, as it stands now, SSUT is causing local school systems to lose money.
The measure failed.
Future of the Suit
Will the mayor's, counties and the state be able to work out an amicable compromise or will the case go to court? There is also another alternative, the legislature could make changes in it's session next year. No doubt a bill addressing the issue will be filed.
No response has been released by the state.
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