A lawmaker has refiled a bill to raise Alabama’s online tax rate, which brick-and-mortar retailers say puts them at a disadvantage with online companies. 

HB 36, sponsored by Rep. Chris England, D-Tuscaloosa, would raise the Alabama Simplified Sellers Use Tax (SSUT) rate from 8% to 9.25%. The increased tax would be distributed to the Education Trust Fund; the General Fund; local boards of education, and counties and municipalities.

“SSUT has become something that essentially is us cutting off our nose to spite our face, because, again, if you look now, the Education Trust Fund budget is starting to flatline,” England said. “Other budgets are growing, and it’s simply because we’ve encouraged people to purchase things online and not go into our stores anymore.”

Two versions of the bill were filed in the 2024 regular legislative session, but did not make it out of the House Ways and Means Education committee. 

The bill is assigned to the Ways and Means General Fund this year. Most SSUT revenue goes to the General Fund, which provides money for non education services in the state.

A message was left with Sen. Greg Albritton, R-Atmore, who chair the Legislature’s General Fund budget committees, on Monday afternoon. Rep. Danny Garrett, R-Trussville, chair of the House Ways and Means Education committee, said Thursday that he was not familiar with the bill.

Rep. Rex Reynolds, R-Huntsville, said Monday that he has not looked at England’s bill in detail yet and there may be additional bills coming.

“Rep. England may have done this, I’m not suggesting he didn’t,” he said. “However, for a bill to move there, we got to make sure we got some compromise or consensus between education and the cities and the counties,” he said.

Charles Murry, spokesperson for House Speaker Nathaniel Ledbetter, R-Rainsville, wrote in a text message on Friday that there was no reason for the change of committee and that it would have been appropriate to assign this bill to either committee.

There is a concern that brick-and-mortar retailers are at a disadvantage because the online sales tax rate can be lower than the sales tax in stores. A 2023 Public Affairs Council of Alabama (PARCA), citing information from The Tax Foundation, a tax policy nonprofit, estimated that the average sales tax around the state, including state and local levies, is 9.25%.

“At the state level, the SSUT is the equivalent of the state sales tax, a 4% levy on online sales, the same rate that is applied to sales in Alabama stores,” the report said. “In terms of state taxes, the SSUT creates a level playing field between online vendors and brick-and-mortar stores. But at the local level, the tax creates winners and losers.”

Vic Wilson, executive director of Council for Leaders in Alabama Schools, said Monday that the difference means that less money would go towards whatever that entity is funding. In this case, it’s education.

“Makes it more of an apples to apples than apples to oranges when you’re talking about the same amounts being applied to SSUT that it’s applied to brick and mortar,” he said.

Ryan Hollingsworth, executive director of the School Superintendents of Alabama, said he had not read this year’s version of England’s bill, but they were supportive of the SSUT being treated as a local tax, with distribution worked out at the local level. 

“You’ve got to have money at the local level to be able to cover the cost of things that the state don’t cover,” he said. 

England said that the SSUT is causing local school systems to lose money.

“Every school system across the state is losing money,” he said. “Local school boards are losing money because of the SSUT, with one  notable exception. In Morgan County, they actually distribute that money differently than everybody in most locations do.”

Under a 2021 constitutional amendment sponsored by Sen. Arthurr Orr, R-Decatur, Morgan County retains 5% of the SSUT distributed to the county is retained for administrative purposes and the rest is provided to the county commission to be distributed each fiscal year. Of the commission’s share, 85% goes to county and city boards of education based on school enrollment; 13.5% to the Morgan County Board of Education and 1.5% to the certified volunteer firefighters in the county.

Orr said the changes were originally in a local bill which the county commissions refused to implement. A Montgomery Circuit Judge ruled for the legislation in 2020 and the state Supreme Court upheld it in 2021, according to the Alabama Daily News.

Orr said Thursday that local school systems requested the bill after seeing their revenue stop growing after the SSUT bill was passed.

“It’s important, yes, the money is important to the local, three local systems and the volunteer fire departments,” he said.

Orr said Morgan was “a little bit of an exception” and that he did not expect county commissions to support a statewide version of the Morgan County model. Orr’s amendment removed some money distributed to the county and municipality. If they tried to model the state off of Morgan County, the county commissions would not be supportive and that lots of counties don’t have their current sales tax funding model. 

Sonny Brasfield, executive director of the Association of the County Commissions of Alabama, said Friday that they would not support a wider expansion of the Morgan County model, but they would support changes that continue to provide them with 20% distribution.

“You’re asking, ‘Would we be supportive of county revenue being reduced?’” he said. 

According to the PARCA report, counties receive 20% of total SSUT collections.

Brasfield said they would be supportive of schools being included, but he is also not sure he saw much excitement for the bill this past session.

“It’s a long time until the session starts,” he said. “So you know, talking about what the circumstances are going to be in February and what the circumstances are today. You know, things could change a lot, but there was a pretty resounding ‘no’ to the idea of raising the SSUT rate in the last session, at least, that was my impression of things.”

Walt Maddox, mayor of Tuscaloosa, said that the SSUT law was ahead of its time when it passed, but it now favors an online retailer over an Alabama small business. He said Tuscaloosa is estimated to have lost $12 million in revenue this year. The estimate was calculated based on the U.S. Department of Commerce’s estimate that 16% of retail sales are done online, but it could be higher in Tuscaloosa due to the city’s younger age, on average.

“Cities like Tuskegee, Jacksonville, Troy, Tuscaloosa, Auburn, where you have young college populations, you’re losing hundreds of thousands, if not millions of dollars, because SSUT is divided by a formula made up of population that also is divided up differently between cities and counties,” he said. “Sales taxes are never generated by by population counts. They’re generated by centers of retail, and that is where SSUT ultimately needs to be, if you look at even the law that was created, is to mirror sales tax.”

England said there are some people who are against it because it’s a tax increase, but the same item would be purchased with the area’s tax rate in the store.

“If this same item were purchased in a store, it would be whatever the tax rate is in your area, and the money would actually go back, the money that was spent in your area would actually benefit your area,” he said.