Remote sellers would collect 1.25% more in Alabama taxes with extra proceeds going to local education, under bill

Rep. Chris England, D-Tuscaloosa, has introduced legislation to increase the amount of taxes remote sellers collect from Alabama consumers and to have the increase go to local school boards.

HB17 would increase Alabama’s simplified sellers use tax rate from 8% to 9.25% and define how the additional proceeds from the tax will be distributed. It has been assigned to the House Ways & Means Education Committee.

Currently, half of the proceeds from the tax goes to the state treasury and half goes to the state’s cities and counties, England’s bill would maintain the current distribution for the first 8% of the proposed 9.25% rate.

Under HB17, the state, city and county governments would not get any of the 1.25% increase. Instead the extra 1.25% would go to local boards of education based on the average daily membership of their public schools in the preceding school year.

Alabama’s economic nexus rule requires remote sellers with more than $250,000 in retail sales of tangible personal property into Alabama to collect sales or use tax on transactions with Alabama customers.

Under the Simplified Seller Use Tax Remittance Act (Act No. 2015-448), remote sellers without a retail presence in Alabama collect a flat 8-percent use tax from Alabama residents who buy their merchandise.

Act No. 2018-539 changed the distribution of the use tax. Since Jan. 1, 2019, the distribution has been as follows:

  • 50% to the state. Of that, 75% goes to the General Fund; 25% to the Education Trust Fund.
  • 50% to the cities and counties. Of that, 60% goes to the cities and 40% to the counties. The local governments’ distribution is shared proportionally by population.

The distribution formula used since 2019 would remain the same for the first 8% of the simplified sellers use tax, under England’s bill.

The simplified sellers use tax has been a source of revenue growth for both the state’s general operating and education budgets.  Since 2016, remote sellers and marketplace facilitators have remitted more than $2.6 billion in taxes to Alabama. In the 2023 calendar year, the simplified sellers use tax accounted for about 20% ($788.5 million) of the almost $4 billion in total taxed sales in Alabama.

The last time the Alabama Legislature attempted to increase the amount of taxes remote sellers collect was in 2019. The 2019 bill to increase the flat rate to 9% never received floor debate.

The Alabama Retail Association anticipates other proposals for an increase in the flat tax rate for remote sellers and marketplaces during this session and will keep you apprised as any of the legislation moves.

This article is part of the Alabama Retail Report, a communication for Alabama Retail Association members. Not a member? Join us!

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