A new proposal in the Alabama Legislature would increase sales tax by 1.25% on online purchases and dedicate the revenue to public schools.
Unlike a tax increase proposal that died earlier this year, the new bill doesn’t boost revenue for municipalities or counties.
House Bill 36 by Rep. Chris England, D-Tuscaloosa, is pre-filed for the 2025 legislative session and is reigniting discussions on the difference between how in-person and online purchases are taxed and how tax revenue from the two is distributed.
“If you want to help local businesses, help local school boards and put more money toward education, this is the way to do it,” England told Alabama Daily News.
In the 2024 session, an effort to increase the sales tax on online purchases was approved in the House education committee but died in the House without a vote after opposition was raised. Critics, including some Republicans, called it a tax hike and questioned why a large portion of the new proposed revenue was dedicated toward the state’s largest cities. The bill was amended to include schools but still stalled.
Called the Simplified Sellers User Tax, 50% 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.
Meanwhile, all of the state sales tax collected on in-store purchases goes to the state’s Education Trust Fund, which supports K-12, community colleges and universities in the state.
England’s bill does not affect the distribution for the original 8% SSUT but dedicates the additional 1.25% increase to local boards of education based on the previous year’s enrollment.
The redirecting of SSUT revenue to the General Fund and local governments has created “a significant lack of revenue” for schools, England said.
While education funding going into the 2025 fiscal year is a record high, a 2023 report from the Public Affairs Research Council of Alabama said school systems, large cities and counties, and brick-and-mortar stores were losing out under the SSUT distribution.
Advocates for the increase earlier this year said it wasn’t fair to local stores that the sales tax they had to charge was often higher than the 8% out-of-state online retailers charge. The SSUT was set at 8% because it mirrored statewide total sales taxes at the time. But now, in-store purchases are taxed at about 9.3% around the state.
England’s new bill has been assigned to the House General Fund committee. Chairman Rep. Rex Reynolds, R-Hazel Green, told ADN he hears from schools and businesses in his district about inequity in the current SSUT setup.
“We want to be fair to those who have spent bricks-and-mortar dollars in our districts,” Reynolds said.
But final legislation will require a consensus from impacted parties, including schools, counties and cities. Reynolds said there’s probably only one chance to change the law.
“We’ll figure out the best way to move forward in 2025 and get behind legislation to fix it,” Reynolds said.
Sonny Brasfield, executive director of the Association of County Commissions of Alabama said his organization won’t support a bill that doesn’t include at least 20% of new revenue being dedicated to counties.
“Our expenses continue to rise like everyone else’s, but we support education receiving significant money if the Legislature were inclined to increase the rate,” Brasfield said.
Greg Cochran, executive director of the Alabama League of Municipalities, said that between now and the session the organization will “continue to review SSUT proposals and have discussions with lawmakers and stakeholders to ensure we are wisely investing this revenue in our communities to improve a variety of quality-of-life services.”
England said he is open to discussions and amending the bill.
But there will be opposition. Rep. Jamie Kiel, R-Russellville, raised concerns over this year’s legislation and said his opposition remains.
“The legislature recently cut the grocery tax and overtime tax because we know that it is difficult enough for hard-working families to make it financially,” Kiel said. “My stance on raising taxes is the same as it has been in the past. Why would we raise taxes on the very people for whom we just cut taxes? The same people who buy groceries locally and are working hard to make ends meet are the same people who will pay more taxes on essential items that they purchase online.”
The session starts Feb. 4.