The Lifeblood of State, County AND City Government in Alabama
How does SSUT work?
When originally passed in 2015, the B-percent Simplified Sellers Use Tax (SSUT) rate represented the
average sales tax rate in Alabama. Today, the internet retailers with no physical presence in Alabama
collect that flat rate from their customers on all sales in the state. That revenue is remitted to the Alabama
Department of Revenue and is split 50/50 between the State and local government. Sixty percent of the
local government portion, which is revenue collected from every sale in the entire state, is then divided
among all the cities by population. This means each city receives a share of every sale in the entire state.
Likewise, the remaining portion of the local revenue is allocated by population among the counties.
The process is simple and does not place an undue burden on the internet companies. In fact,
Alabama’s law is recognized as one of the most efficient programs in the nation
Are cities being short-changed in the allocation of SSUT revenue?
On the contrary, if you look at the average sales tax rate statewide, cities actually receive a
disproportionately-larger share of the SSUT revenue. In 2024, the average sales tax rate statewide had
increased to 9.33 percent, with local sales tax making up 5.33 percent and the remaining 4 percent going to
the State. While cities receive 60 percent of the SSUT local revenue, municipal sales tax rates make up only
55 percent of the total local rate.
If SSUT dollars are to be distributed in line with sales tax rates, the municipal portion must be reduced
and the county portion increased. In fact, in calendar year 2024, Alabama’s cities were overpaid in SSUT
revenue by $22 million.
Shouldn’t SSUT revenue be treated like sales tax revenue?
The attempts to link SSUT with sales tax revenue in Alabama are misguided and are being used to cloud
the issue. SSUT is a tax on internet-based transactions and is collected by companies that do not have a
physical presence in Alabama. In many cases, those who have traditionally traveled to larger cities to shop
(and leave their sales tax dollars in those bigger cities) are now ordering online, and their taxes are making
their way back to the communities where they live. Alabama’s sales tax law does not apply to internet
based transactions and should not be used for comparison.
Is SSUT a threat to Alabama’s biggest cities?
In 2024 alone, the largest 10 cities received upwards of one-third of the SSUT revenue reserved for
Alabama’s more than 460 municipalities – and the $106 million directed to these 10 cities came with no
administrative fee and no auditing or collecting expense for the cities. This revenue would have escaped
taxation without the implementation of SSUT. Cities claiming that SSUT is a “threat” are only hoping
to change the distribution formula and divert revenue from other smaller cities or from county
governments. The major cities are unwilling to accept that the convenience of purchasing on the internet
is driving customers away from the state’s former retail hubs. People are no longer driving to the biggest
cities to shop. SSUT provides a way to collect revenue from those online purchases that would, otherwise, go
untaxed in Alabama.
How much tax revenue are we talking about for internet sales?
Surprisingly, Alabamians shop on the internet at a rate that is well below the national average. The U.S.
Department of Commerce estimates that online sales represent about 16 percent of total combined sales.
Here in Alabama, online purchases are just more than 10 percent of in-state retail sales. This fact also
puts in question many of the criticisms made by the SSUT detractors, as they have used national estimates to
bolster their claims
Is there another way to collect this tax revenue on internet sales?
An alternative national program exists, but Alabama does not qualify for participation. Known as the
Streamlined Sales and Use Tax Agreement, more than 20 states with a centralized sales tax collection
process have forged a national approach to collecting taxes from internet transactions. Alabama
does not qualify because every city and county in Alabama can collect its own sales tax. Joining this
program would also require Alabama to restructure its sales tax definitions and procedures, and doing so
would result in lost sales tax revenue, making the change very unlikely to happen.
Is SSUT a “Socialist Scheme” (in the words of the Mayor of Tuscaloosa)?
This comment is laughable. SSUT revenue is simply allocated among the cities based on population. And
apparently, Tuscaloosa’s Mayor believes such a methodology is socialistic. He has suggested his city should
get a larger cut of the money because college students at the University of Alabama supposedly spend more
money on the internet than other citizens. Likewise, the mayors of other large cities have suggested they
should get a larger share because their citizens shop more actively on the internet than those in rural areas.
Every mayor and county commissioner can make an argument that their community is unique and, as such,
should receive special treatment and be rewarded with additional revenue at the expense of everyone else.
However, almost every shared tax in Alabama is allocated by population, and all citizens are valued
equally in those calculations. Such an approach is not socialistic – it’s just the fairest way for everyone.
Can’t we just change how SSUT works?
Under the ruling of the United States Supreme Court, states cannot establish an internet tax collection
process that places an “undue burden” on out-of-state companies. Because these internet companies are not
“residents” of Alabama, we must provide a system that is simple. Honestly, the cries of the big cities ignore
the complexity of applying Alabama’s locally-ad ministered tax system to online retailers. Accomplishing the
goals of the big cities would require internet retailers to apply more than 4,000 different sales tax rates
on sales within the state of Alabama. Likewise, the internet retailers would be forced to navigate a web of
inconsistent sales tax exemptions and even the current Back-to-School sales tax holiday would be on the
chopping block.
All in all, the internet retailers ‘cost and administrative burden to work through Alabama’s sales tax
system would place the current SSUT revenue at risk for the State and for all counties and cities