There are now about 225 Alabama cities, towns, counties and school systems involved in a legal fight over one of the state’s fastest growing revenue sources.
Fourteen cities and local school systems have joined in support of a lawsuit that alleges they are shortchanged by the state’s formula for collecting and distributing tax revenue from Alabamians’ online purchases.
And 140 cities and towns, along with every county in Alabama, intervened on Wednesday on behalf of the state, arguing the lawsuit should be dismissed. They’ve seen the Simplified Sellers Use Tax become an integral part of their annual budgets and don’t want a change or disruption to that funding stream.
Online sales tax revenue since 2016 ranges from less than $100,000 for the smaller towns to more than $123 million for Jefferson County.
You can see the full list of entities on each side at the end of this story.
In August, Tuscaloosa, Mountain Brook and Tuscaloosa City Schools sued the Alabama Department of Revenue over the SSUT, the flat 8% paid on purchases bought online. Those cities have said the SSUT structure doesn’t return enough of their residents’ tax dollars to the local community, making it harder to pay for city services.
They want a tax collection system where retailers with stores and facilities in the state remit for online purchases the same state and local taxes they would for in-store purchases.
In its court filing, the City of Alabaster said it is projected to lose about $4.2 million in local tax revenues this year, calculated as the difference between the portion of SSUT distributable to Alabaster and the amount of tax revenue Alabaster would receive under conventional sales tax collections for transactions delivered to its residents.
“These losses are escalating as internet sales continue to supplant traditional brick-and-mortar transactions, and Alabaster is blocked from auditing SSUT participants to verify actual sales within its jurisdiction,” its filing said.
The state has asked a Montgomery Circuit Court Judge to dismiss the case. Potential parties had until Wednesday to intervene with either the plaintiffs or defendants.
Sonny Brasfield is executive director of the Association of County Commissions of Alabama, which wants the case dismissed. The organization rounded up 207 cities and counties in about three weeks.
“I was really astounded by the interest that came from city governments,” Brasfield told Alabama Daily News on Thursday. “Clearly this money is more important to the cities than I had ever realized.
“I think that 207 cities and counties filing one motion should speak loudly to anyone who is listening.”
Collection of the SSUT began in 2016. Now, per state law, 50 percent of online sales tax revenue collected goes to the state where it is further split: 75% to the state General Fund and 25% to the Education Trust Fund. The other half is split among local governments: 40% to counties on a population basis and 60% to municipalities on a population basis.
As of 2024, it was worth a total of $851.1 million, up from $386.3 million in 2020, according to the Alabama Department of Revenue.
AEA files separate suit
The Alabama Education Association filed its own lawsuit on Wednesday arguing the current SSUT structure hurts public education because only about one-eighth of the current 8% tax goes to the Education Trust Fund. In traditional brick-and-mortar store sales, the state’s 4% sales tax goes to the ETF to support K-12 and higher education.
“The current application of the SSUT shortchanges Alabama’s local schools,” Theron Stokes, AEA associate executive director, said in a written statement. “Allowing remote sellers to remit the SSUT instead of remitting traditional state and local sales taxes diverts millions of dollars away from the Education Trust Fund and local school systems — money our schools desperately need.”
The lawsuit challenges the Alabama Department of Revenue’s administration of the SSUT, arguing it is inconsistent with Alabama law.
Not joining legal fight
There are some large cities not joining this legal fight. While the Big Ten Mayors, an association of leaders of the state’s largest cities, has been vocal for years about the need to change the SSUT structure, several of the cities did not join the lawsuit as plaintiffs. That includes Auburn, Birmingham, Dothan, and Huntsville.
Huntsville Mayor Tommy Battle in a written statement this week said the current structure “is not sustainable for Alabama’s cities or their school systems.
Decatur didn’t join either, but issued a resolution of support.
“… We support a fair, equitable division of these revenues and stand ready to work with the state and local governments to improve the current system, ensuring it serves all citizens as intended.”
Legislation in recent sessions would have raised the restructured the online sales tax and carved out of SSUT food delivery platforms like DoorDash and UberEats. They did not pass.
Some lawmakers are sympathetic to the larger cities’ arguments but have said another bill while this lawsuit is pending may be ill advised.
The 2026 legislative session starts Jan.13.
A hearing in Montgomery Circuit Court on the state’s motion for dismissal is set for Jan. 21, but plaintiffs have requested more time to organize those who recently intervened.
Cities and schools systems joining the lawsuit siding with Tuscaloosa, Mountain Brook and Tuscaloosa City Schools as plaintiffs:
Alabaster
Alabaster City Schools
Florence City Schools
Foley
Gulf Shores
Hoover
Huntsville City Schools
Hueytown
Madison
Madison City Schools
Mobile
Montgomery
Pelham
Pelham City Schools
Cities and towns that have joined the lawsuit siding with the state as defendants:
Abbeville
Altoona
Anderson
Ariton
Arley
Attalla
Bayou La Batre
Bear Creek
Beaverton
Belk
Berry
Brewton
Brilliant
Brookwood
Butler
Carrollton
Centreville
Cherokee
Chickasaw
Clio
Coffee Springs
Columbiana
Cordova
Courtland
Cuba
Cusseta
Daleville
Demopolis
Double Springs
Douglas
East Brewton
Elmore
Emelle
Eufaula
Eva
Excel
Falkville
Fie Points
Flomaton
Franklin
Fredonia
Geiger
Geneva
Georgiana
Glen Allen
Glencoe
Greensboro
Goodwater
Grant
Grimes
Gu-Win
Guin
Hacklebug
Haleyville
Hamilton
Hartselle
Hayden
Heflin
Highland Lake
Hillsboro
Hobson City
Hokes Bluff
Jacksonville
Kennedy
Kilpatrick
Killen
LaFayette
Lanett
Leighton
Level Plains
Lexington
Lincoln
Linden
Lineville
Lisman
Littleville
Malvern
Maplesville
Midland City
Millbrook
Millport
Millry
Monroeville
Moody
Moulton
Moundville
Mount Vernon
Munford
Muscle Shoals
Myrtlewood
Nauvoo
Newton
North Courtland
Oak Grove
Ohatchee
Orrville
Ozark
Piedmont
Priceville
Ragland
Rainbow City
Ranburne
Red Bay
Reece City
Rehobeth
Rockford
Rogersville
St. Florian
Sardis City
Satsuma
Selma
Semmes
Sheffield
Slocomb
Southside
Snead
Somerville
Springville
Steele
Sulligent
Thomaston
Trinity
Tuscumbia
Valley
Valley Grande
Vance
Vernon
Wadley
Walnut Grove
Waterloo
Waverly
Weaver
Wedowee
West Blocton
Wetumpka
Winfield
Woodland
Woodstock
Editor’s note: This list was updated to remove some cities that had expressed interest in being plaintiffs, but did not as of Wednesday.