Alabama’s larger cities have initiated a significant legal challenge against the state’s online sales tax, known as the Simplified Sellers Use Tax (SSUT). The lawsuit, filed in the Montgomery County Circuit Court, seeks to declare the SSUT invalid and compel the Alabama Department of Revenue (ADOR) to collect traditional state and local sales taxes on online purchases.
Senator Greg Albritton, a Republican from Atmore, has defended the SSUT, asserting that it is an essential revenue source for cities, counties, and schools. Albritton remarked, “This is a novel approach that we took 10 years ago to correct a change in the economy and is working great.” He emphasized that the SSUT provides a growing tax revenue stream as more consumers shift to online shopping. Under the current structure, the state retains 50% of the revenue, while 30% is allocated to cities and 20% to counties, based on population.
The cities contend that the SSUT, which imposes a flat 8% tax on online sales since 2016, is no longer valid due to the U.S. Supreme Court ruling in 2018 regarding the case of South Dakota vs. Wayfair. This landmark decision allows states to collect traditional sales taxes on online transactions. The plaintiffs argue that Alabama is legally required to impose these traditional taxes instead of the SSUT, which they claim shortchanges municipalities. For instance, Tuscaloosa has a total sales tax rate of 10%.
In response to the challenge, a proposed bill would allow consumers who pay city sales taxes where they do not reside to receive refunds. Tuscaloosa Mayor Walt Maddox criticized Albritton’s proposals, stating they would undermine local police departments, disrupt school funding, and hinder economic development statewide. Maddox asserted, “Senator Albritton publicly threatened retribution and appears to be delivering with this proposed legislation.”
Albritton countered by stating that his proposals align with the reasoning cities used in their lawsuit, advocating for destination-based taxation, where taxes are collected based on the purchaser’s location. He illustrated this with an example of a consumer from Washington County driving to Mobile to purchase a chainsaw, who would be subject to taxes from both Mobile city and county.
The cities’ lawsuit includes support from Alabama’s 67 counties and 140 cities, all united in defense of the SSUT. Sonny Brasfield, executive director of the Association of County Commissions of Alabama, expressed concerns about invalidating the SSUT, arguing that it would create legal and practical issues, especially given Alabama’s diverse sales tax rates and exemptions. “If there’s some way to make it better, I wouldn’t be doing my job if I said we were against that,” Brasfield stated. “But what’s proposed in the lawsuit puts SSUT in peril.”
In previous legislative sessions, Rep. Chris England proposed increasing the SSUT rate from 8% to 9.25%, directing the additional revenue to public schools. His efforts, however, did not pass. Albritton acknowledged that discussions regarding changes to the SSUT are appropriate but stressed that such matters should be settled in the legislature rather than the courts.
He warned that if the lawsuit progresses or leads to an injunction, it could have devastating consequences for cities, counties, and the state of Alabama. Albritton noted, “If this lawsuit gets legs or if there’s an injunction issued by any court, that will be devastating for every city, every county, and the state.”
As Alabama navigates this contentious political landscape, the outcome of the lawsuit could reshape the future of online sales taxation and its implications for local governance and funding.
