An Alabama Senate committee debated but did not vote today on a bill that would change the state’s program for taxing online sales that would otherwise go untaxed.
Changes could be coming, at least in part, because of Amazon’s acquisition of Whole Foods and how that could affect Amazon’s collection of taxes on sales to Alabama customers.
The Legislature created the Simplified Sellers Use Tax in 2015. It allowed online sellers with no stores in Alabama to voluntarily collect an 8 percent use tax on sales to Alabama customers. The use tax is the sales tax on out-of-state purchases.
The U.S. Supreme Court ruled in 1992 that companies with no physical presence in a state are not required to collect that state’s use tax. Congress has not addressed the issue since, even as the online marketplace has exploded.
The SSUT provided a way for Alabama to capture tax dollars lost as customers make more of their retail purchases online. The state collected $56 million from the SSUT during the 2017 budget year.
Sellers who participate in Alabama’s SSUT collect an 8 percent use tax, an approximation of the total state, city and county sales taxes for much of the state. Half of the money goes to the state, while counties and cities split the other half, allocated by population.
Amazon signed up for the SSUT and, as the largest online retailer, collects a large share of the state total. But Amazon’s acquisition of Whole Foods will give it a physical presence in Alabama because Whole Foods has five stores in the state. That means Amazon is no longer eligible for the SSUT, some officials said.
Sen. Trip Pittman, R-Daphne, chairman of the Senate Finance and Taxation General Fund Committee, proposed a bill that would allow Amazon and other eligible companies with an affiliate in Alabama to participate in the SSUT.
The bill raised concerns from some city officials who say it would open the door to other online retailers with stores in Alabama, like Walmart.com, to participate in the SSUT and collect the 8 percent tax on sales instead of the higher rate on sales to customers in their cities.
“I cannot conceive of a large retailer with an online platform that would not avail themselves of SSUT,” Paul Wesch, finance director for the city of Mobile, told the committee.
Some senators on the committee expressed reluctance to change the law to keep Amazon in the program.
“They moved their own goal line,” said Sen. Bill Holtzclaw, R-Madison.
Sen. Paul Sanford, R-Huntsville, said it’s clear Amazon can’t be eligible for the program anymore.
“I’m OK with us sitting where we’re at and letting the chips fall where they may,” Sanford said.
Sonny Brasfield, executive director of the Association of County Commissions of Alabama, who helped conceive the SSUT, told committee members that lawmakers need to take action to protect the millions in revenue from Amazon.
Otherwise, Brasfield said, lawmakers could be left with a glaring hole in the budget. Seventy-five percent of the state’s share of the SSUT goes to the always tight General Fund, while 25 percent goes to the Education Trust Fund.
“We need to pass a bill to deal with this issue,” Brasfield said.
Greg Cochran, director of advocacy and public affairs for the Alabama League of Municipalities, said the league’s executive committee is asking the Legislature to raise the city’s share of the SSUT. Cochran said the league wants the SSUT rate raised to 10 percent, with 4 percent going to the cities. Cochran said that more closely mirrors taxes on sales from brick-and-mortar stores.
Cochran said cities also want to close what he called a loophole in the law. Online vendors who pay to sell their products on Amazon and other online platforms aren’t required to collect the SSUT.
Pittman’s bill specifies that the SSUT can’t be applied to sales of any products purchased from or delivered from any retail location in the state, purchases that are subject to the regular sales tax.
Pittman opted not to have the committee vote on the bill after today’s public hearing and but said he plans to bring it back after some negotiations.