The Ways and Means Education Committee in the Alabama has voted on a measure which would raise the sales tax on transactions on the internet. If passed by the full legislature and signed by Governor Kay Ivey, the online sales tax would more closely match the fees charged to conventional “brick and mortar” retailers.
Tuscaloosa Democrat Chris England sponsored the measure which would raise the internet sales tax by 1.3%. Specifically, the proposal would add the extra tax burden to what’s known as the simplified sellers use tax, or SSUT, which is the online sales tax. 20% of the money raised would be distributed to local boards of education. The Alabama Reflector quotes critics of the current sales tax, including retailers, who complained that the lower fees gives online sellers an unfair advantage.
The Alabama Political Reporter says the bill that passed Committee represents a change for England. His original plan didn’t carve out revenue specifically for Alabama public schools. England’s bill is also a companion to legislation by Republican State House member Joe Lovvorn of Auburn, which creates a sales tax holiday for certain transactions for outdoor equipment. Parts of the current internet sales tax, or SSUT, are already sent to local governments. Wetumpka, for example, gives 25% of the money generated by its internet sales tax to its County Board of Education.
Effort to revise Alabama online sales tax go back to 2023. APR reported on efforts by local government for more transparency on what the State collections from internet purchases. In March of last year, APR reported how Mayors of Alabama's largest cities wanted to open up the hood on the state's online sales tax program, amid worries that cities that impose high sales tax rates may be losing out on revenue.
While the combined city, county and state sales tax rate in most Alabama cities were higher than 9%, the state's Simplified Sellers Use Tax collected only 8%. Whether traditional sales tax or online tax is collected, the state gets a 4% cut. Cities get 60% of the other half of the 8% online rate, while counties get 40%, with individual amounts determined by population.
That was considered a good deal for counties, because Alabama cities often reaped a larger share of local sales tax revenue. Cities and counties fought over how the money was divided in 2018 and 2019. Mayors at that time weren’t proposing a re-division. Instead they say they wanted figures on where purchases are coming from, so they could compare that to their current shares of online sales tax.
“With transparency, we can ensure that our schools, police departments and road networks are receiving the investments they have earned,” Tuscaloosa Mayor Walt Maddox said.
The mayors say they needed to know the total online sales tax activity originating in their cities, not how much any one business paid. They also argued that the 8% rate is unfair to businesses that must charge higher rates for purchases made at their stores.
“We think that cities, counties, school systems, and Alabama taxpayers ought to be able to get a clear picture of our how online sales tax system works in order to have certainty and plan for the future and know that our local small businesses are being treated fairly," said Mobile Mayor Sandy Stimpson.
