A bill to increase the state sales tax on online purchases will return in the 2025 legislative session, but supporters agree some advocacy and education need to happen between now and then.
A bill that would increase the sales tax on online purchases from 8% to 9.3% to put them more on par with the tax on in-store purchases died in the Alabama House. It was criticized by some GOP members for being a tax hike and others raised concern that most of the new revenue would go to the state’s largest cities.
But advocates will continue to argue that the current Simplified Sellers Use Tax — the fancy name for the online sales tax — is unfair to traditional retailers who have to charge a higher rate of combined local and state sales taxes. Meanwhile, local municipalities and schools get less revenue from online sales.
Rep. Chris England, D-Tuscaloosa, told Alabama Daily News he will re-file his bill next year.
“I believe that it would help further the discussion if members knew how much money their cities and counties were losing on local sales, how much money local school boards are losing, how much of an impact the SSUT has on local business because people are choosing to shop online inside of going into our local brick and mortar stores.”
England said he hopes the discrepancy in the tax rate is part of the discussion of a newly formed group studying this year how the state funds K-12 public education.
Currently, fifty percent of the SSUT 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. England’s bill would not have touched that distribution for that 8%, but would have changed how additional revenue is distributed.
The bill was changed halfway through the session to include new money for schools. Sixty-five percent of the new revenue would go to municipalities with 65% of that to municipalities with populations of 50,000 or greater and 35% to municipalities with a population less than 50,000. Fifteen percent would go to counties based on population. Twenty percent would be distributed to local school systems based on enrollment size.
There were concerns that larger cities were getting too large a share of the potential new funds.
“We’re working with our membership to look at the distribution of the new funds and we hope to come to an agreement of how those funds should be distributed to all of our 465 municipalities,” Greg Cochran, executive director of the Alabama League of Municipalities, told ADN on Monday.
England’s bill this year was tied to Rep. Joe Lovvorn’s proposal for a sales tax holiday on sporting and outdoor equipment. Lovvorn, R-Auburn, said while he wanted to give Alabamians an option for tax-free outdoor items, he didn’t want to hurt education revenues. He’s considering sponsoring the tax holiday bill again next year and wants it to be revenue-neutral. Whether that’s through an SSUT bill or something else is to be determined.
He said the current SSUT rate gives an unfair advantage to companies based out of state and selling online “as compared to our brick-and-mortar stores that invest in our communities directly.”
“How we level that playing field for small business owners is very important,” Lovvorn said.“And it’s a statement about who we are in Alabama that we take care of our own.”
Opposition in the past session included Rep. Jamie Kiel, R-Russellville, vice-chair of the House education budget committee. On Monday, Kiel said his concerns will likely remain in the next session.
“I think if competition is the issue — and that was part of the discussion, that cities were having a hard time competing with online tax collection — then cities should look at cutting their sales tax to be more competitive. As a business owner, that’s what I do.”
Kiel owns Kiel Equipment, selling lawn and garden equipment.
Kiel previously said if SSUT were raised now, it would create a cycle of corresponding local tax increases.
Meanwhile, lawmakers who have cut several taxes in recent years aren’t keen to raise one, he said.
“We’ve cut the grocery tax to refund some of the people’s money back to them, this would just add a tax on those same people.”
The statewide SSUT law took effect as a voluntary 8% tax on online sellers in 2015. The tax became mandatory in January 2019, at which point online sales tax revenue jumped significantly. Online sales tax collection was a boon to both the state General Fund and education budgets during the pandemic.
The SSUT was set at 8% at the time because it mirrored statewide total sales taxes, Sonny Brasfield, executive director of the Association of County Commissions of Alabama.
His group and others have been discussing for about three years the need to increase the SSUT, but he understands that for lawmakers this year “it came out of left field.”
“For legislators, it was a little too much, too fast,” Brasfield said Monday. “Between now and next session I think we’ve got some work to do inside our groups as well as with the members of the Legislature.”