The City of Tuscaloosa and other municipalities have dropped their lawsuit over the state’s collection and distribution of sales tax revenue from online purchases, instead hoping to find a solution in the Legislature.
What that legislation might look like or when it will be filed is still unknown.
“We do have a small group of House and Senate members focusing on the (Simplified Sellers Use Tax),” Rep. Rex Reynolds, chairman of the House General Fund budget committee, told Alabama Daily News Wednesday. “Now that the suit has been dropped, we can now have dialogue.”
In a statement, Tuscaloosa said it voluntarily dismissed the lawsuit “in a good faith effort to work side by side with the Alabama legislature.”
A statement from the City of Montgomery said the dismissal was at the request of legislative leadership.
In August, Tuscaloosa, Mountain Brook and Tuscaloosa City Schools sued the Alabama Department of Revenue over the Simplified Sellers Use Tax, the flat 8% paid on purchases bought online. It’s also known as the online sales tax or SSUT. Those cities have said its 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. That would generate millions of dollars more per year for the larger cities, they say.
Fourteen other municipalities and school systems later joined them.
On the other side, a total of 201 cities and all 67 counties have intervened on behalf of the state, arguing that 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.
A Montgomery County Circuit Court had most recently ordered mediation in the case.
The SSUT revenue is approaching $1 billion per year. In a formula created by legislation more than a decade ago, 50% of that 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 and 60% to municipalities based on population.
That stream is now one of the growth sources in the otherwise flattening General Fund. Senate General Fund budget chairman Sen. Greg Albritton, R-Range, previously called the lawsuit a “money grab” by municipalities. In December, he pre-filed two bills that could cut cities’ local sales tax collection. He’s no longer pushing those bills.
Asked about the possibility of a bill addressing the larger municipalities’ concerns, Albritton said there isn’t one yet.
“While there is a possibility of that and we hope that there’s some Kumbaya singing, there’s a lot of work to be done,” Albritton said Wednesday evening.
This year’s legislative session is more than one-third complete.
The Association of County Commissions of Alabama has been one of the biggest advocates for protecting the current SSUT structure.
“Although we are pleased with the decision of the plaintiffs, we remain a bit confused why they felt filing suit against the state of Alabama would accomplish anything for their constituents,” the association said in a statement Wednesday. “All 67 counties and 201 cities joined hands to defend SSUT in an unprecedented and united way. And that is not going to change with today’s news. SSUT is the most constitutionally sound solution for our state and it must be protected.”
Montgomery Mayor Steven Reed said the current SSUT framework is outdated and unfair.
“We believe the Legislature has an opportunity this session to modernize the system and ensure that communities like Montgomery receive their fair share,” Reed said in a written statement Wednesday. “We’re committed to working with lawmakers to create a solution that reflects today’s marketplace and protects local revenue.”
The City of Mobile issued a similar statement, saying that dismissing the challenge without prejudice, it is engaging in good-faith negotiations with the Legislature “while preserving its ability to reassert its legal rights should those discussions fail to produce a meaningful and timely resolution.”
“It’s encouraging that our legislative leaders are willing to work toward an immediate solution to a system that is outdated and that has not kept up with best practices used in other states,” Mobile Mayor Spiro Cheriogotis said. “Our position has not changed, but the fastest and most responsible way to fix the current SSUT framework is in the Legislature. We are ready to work with anyone who is serious about creating a system for online sales taxes that is fair to every Alabama community.”