By Wednesday, at least a dozen large cities and other entities are expected to become parties to the City of Tuscaloosa’s lawsuit over how hundreds of millions of dollars in sales tax revenue from online purchases are collected and distributed to government bodies.
And more than 100 smaller municipalities, along with every county in the state, are expected to line up with the Alabama Department of Revenue in defending the tax system, asking a Montgomery Circuit Court Judge to dismiss the lawsuit.
The rush of local governments intervening in the lawsuit speaks to the significance of the Simplified Sellers Use Tax, one of the state’s youngest but fastest-growing revenue streams, and to concerns over what a court-ordered change in its distribution would mean.
On Monday, Sonny Brasfield, the executive director of the Association of County Commissions of Alabama, told Alabama Daily News that 66 counties have agreed to join the state in opposing the lawsuit. The Butler County Commission is expected to vote today to do the same. Brasfield said the support is unprecedented.
“It’s one thing for an association to intervene, one that has a board of directors and it only takes a handful of people to make that decision. It’s another when you have the county governments that now represent every single citizen of Alabama intervening.
“ … So what that should tell anyone concerned about this lawsuit is that counties are concerned about this lawsuit and we’re unified in our opposition to the claims made by Tuscaloosa and others.”
He said he’s also holding more than 100 resolutions from cities and towns ready to become party to the lawsuit and more are expected by the court’s Wednesday deadline to join.
“Collecting sales tax from internet companies is very complicated and it is important that the court understands that any change to the program hits every county and every city in the state.”
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 and educational services. The city councils of Mobile and Madison voted to support the lawsuit on Monday.
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.
The state previously filed a motion to dismiss the lawsuit. A judge last month gave any parties that wanted to join the lawsuit, on either side of it, until Wednesday to do so.
In a statement to ADN Monday night, City of Tuscaloosa officials said more than a dozen entities would be joining their lawsuit.
“Multiple cities and school systems joined this lawsuit not to make a political statement, but to resolve the legal flaws of SSUT,” the statement said.
“… Let’s be clear, SSUT continues to suffer from legal defects, and ADOR has acted beyond their authority granted by the Legislature,”. “The result is a system that shortchanges cities and school systems while vastly overtaxing rural Alabama.”
The statement said plaintiffs realize “the immense resources of the Alabama Association of County Commissions, especially as they work in tandem with ADOR to reject transparency, create an atmosphere of fear and protect the status quo.”
“By contrast, more than a dozen cities and school systems have joined Tuscaloosa in this litigation because their classrooms, public safety, and essential services depend upon getting this right,” it said.
A worry for small towns
Collection of the SSUT began in 2016 after lengthy debates and compromises in the Legislature. Now, 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.
Many of those joining the state’s opposition to the lawsuit are afraid any restructuring of the SSUT formula will take away from smaller cities.
“Our fear is that our funding goes away, and it would go away because someone else decided, quite frankly, to be greedy,” Rainbow City Mayor Joe Taylor told ADN on Monday.
The city receives more than $1 million a year in SSUT revenue, about 1/20 of its overall budget.
He’s afraid a court could halt the SSUT revenue while the legal battle plays out, disrupting that revenue flow to his and other cities, resulting in an immediate reduction in city services.
“Either we’re going to close a community center or we’re going to lay off (policemen, firefighters or other city workers), close our library at certain hours. It has to come from somewhere because this is the only business that is truly ran without a profit margin; it’s money in, money out.
Rainbow City has a population of more than 10,100, according to the 2020 census and the mayor says it’s growing.
“We’re working on infrastructure and transportation and the things that matter the most to give us a future.
“…If you unplug SSUT, it will be devastating for the mid-size and small towns.”
There are 466 cities and towns in the state, and the Alabama League of Municipalities has previously advocated for legislation to modify the SSUT formula and distribution.
“I don’t think anyone foresaw the complexity of online retail and how it would interact with brick-and-mortar facilities and consumer buying habits that we see today,” league Executive Director Greg Cochran said about negotiations more than a decade ago and the plethora of retailers creating online selling platforms since then participating in the SSUT platform.
Cochran said some communities have benefited from the current SSUT structure and would prefer not to see a disruption in revenue streams.
“That has put us in a position of requesting our communities evaluate the lawsuit that’s been filed and evaluate the current SSUT program and see how any changes would impact them, and if they felt led to intervene on either side,then to do that with their local attorney.”
‘This problem is only going to get worse’
On Monday, Madison and Mobile officials announced they were joining Tuscaloosa in the lawsuit.
“If we continue to allow local dollars to be redistributed across the state, cities like Mobile will not be able to maintain the services citizens expect and rely on every day,” Mayor Spiro Cheriogotis said in a written statement.
“Mobilians’ tax dollars should be reinvested in their own community to enhance public safety, support economic development and improve local infrastructure. Instead, we are losing $34 million a year to SSUT, and this problem is only going to get worse as online sales continue to grow.”
The city noted that the lawsuit challenges ADOR’s practice of allowing companies with a clear physical presence in Alabama to participate in a program that was originally intended for out-of-state sellers.
The Alabama Education Association, which represents school teachers, is expected to join the plaintiffs in some way.
“We will be involved in the lawsuit to secure tax revenue for the (state education budget),” said AEA Government Affairs Director Allison King by email Monday.
A statement from the Big 10 Mayors, an association of leaders from the state’s largest cities, stressed the need to change the SSUT distribution.
“The current internet sales tax system in Alabama is broken and must be fixed if our state is going to remain competitive,” the Big 10 Mayors told ADN. “Each year, the negative impact on our state’s cities is getting bigger and bigger, cutting into school budgets, law enforcement support, infrastructure, and public services. And it’s not fair to our local businesses. There’s no reason a local, mom and pop business should have a higher tax rate than large, out-of-state corporations such as Door Dash and Walmart…”
Decatur is part of the Big 10, but its city council on Monday opted not to become party to the suit, WAFF reported.
A hearing on the state’s motion to dismiss is Jan. 21, a week after the Alabama Legislature’s 2026 session begins. Last week, Senate General Fund budget chairman Sen. Greg Albritton said the lawsuit “threatens the fiscal viability of the state.”