On Wednesday, the House Ways and Means Education Committee approved a bill to raise the state's online sales tax from 8% to 9.3%, matching the current average sales tax.
House Bill 258 (HB2580), sponsored by State Rep. Chris England (D-Tuscaloosa), would match the tax collected by online retailers, also called the Simplified Sellers Use Tax (SSUT), to the current cumulative sales tax rate in Alabama.
Currently, state tax imposes a 4% sales tax for retailers. County and municipal taxes bring the state's average sales tax rate to 9.3%.
The online tax rate would be recalculated every five years, but the initial increase would be 1.33%. The fiscal note attached to the bill calculates a total of $121 million in extra state revenue. Sixty-five percent of the revenue would go to municipalities, with a preference to areas with a population of 50,000 or more, 15% would go to counties and 20% would go to the Alabama State Department of Education.
England presented the bill before the committee, saying the current tax rates incentivize people to avoid shopping at local retailers.
"Many years ago, we couldn't compel online marketplace facilitators to collect a tax," England said. "Alabama was pretty forward-thinking in regard to creating an opportunity at a lower tax rate, so we could encourage places like Amazon and so forth to collect a tax. It was at 8%, which is lower than the state tax rate. Since then, the Supreme Court has made a couple of rulings and has provided us with the ability to assess that use tax. So, it has outlasted its usefulness in terms of making them do it voluntarily. So they don't have to do it involuntarily; now we can make them."
He continued, "The online sales tax has skyrocketed. It has ballooned, but it has also encouraged more people to avoid brick-and-mortar retail stores in your counties and your cities. So this is an effort to equalize the tax so more people will go back to your brick-and-mortar, which helps twofold. A, when people go and spend money in your city at the retailer, it helps the retailer, but it also helps the city because you collect that money upfront. But it also, again, encourages people to go buy locally, and I think that's the most important thing here."
During the public hearing, The Alabama League of Municipalities and The Alabama Retail Association spoke in favor of the bill. Several education representatives initially opposed the bill but said they would be in favor if they got a slice of the pie.
The initial bill had no provisions for schools. However, after the public hearing, the bill was amended, adding the 20% education appropriation, which will be distributed to local school boards.
HB258 is reliant on the passage of House Bill 257 by State Rep. Joe Lovvorn (R-Auburn), which creates a one-day sales tax holiday on certain recreational supplies, which also passed on Wednesday. Lovvorn said England's bill was designed to offset the loss of revenue due to the tax holiday.
Lovvorn spoke in favor of the bill, saying that people living in areas with a cumulative tax lower than the appraised average can submit a form to the Department of Revenue to recoup the balance.
State Rep. Jamie Kiel (R-Russellville) questioned whether increasing the SSUT would encourage local governments to increase their sales taxes.
"My question is does it incentivize the town to raise tax again? And they'll just be above it again," Kiel said. "It's not the retailers' fault that the local city or county has a higher tax rate than the SSUT."
England blamed the legislature for initially setting the SSUT "so low" at 8%.
State Rep. Debbie Wood (R-Valley) also objected to the bill, saying the initial bill's estimate of $28 million could provide six weeks of paid maternity leave to every educator In the state.
"I know we're giving a tax break, but we're the education committee, you know?" she said. "I mean, we could really do something to impact our teachers across the state, and we're not even talking about that. We're talking about allowing people to come in and purchase items that make them happy."
Ultimately, Wood and Kiel were the only "no" votes on the bill. It now goes to the House floor for a full vote.
To connect with the author of this story or to comment, email craig.monger@1819news.com.
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