A proposal to increase the state’s online sales tax that supporters said is meant to help competition drew criticism from education groups Wednesday, who suggested schools were left out of the bill.
HB258, sponsored by Rep. Chris England, D-Tuscaloosa, would add an additional levy on top of the 8% online tax, known as the simplified sellers use tax (SSUT). The funds from the new tax would be distributed to county and municipal governments.
The new rate would be based on an equation recalculated every five years. The fiscal note has the new additional levy at 1.5% initially.
England and other supporters said raising the total online tax to 9.5% would help local retailers compete with online merchants. Local sales tax rates can be higher than the current SSUT.
“This is an effort to equalize the tax so more people will go back to your brick and mortar,” he said.
Prior to the start of the session in February, England filed a bill– HB17– that would have increased the SSUT to 9.25% and allocated the funds to local boards of education based on average daily membership of the preceding school year. But the representative told the committee on Wednesday that the legislation was “super dead.”
Proponents of the bill said that it would help local businesses compete with online retailers.
Baker Allen, director of policy and research at the Alabama League of Municipalities, said the bill would create a “competitive environment” for local businesses.
“This bill aligns the rate to better reflect what local governments would have collected,” he said. “The revenue generated allows local governments to meet the expectations of their local communities.”
Ryan Hollingsworth, executive director of School Superintendents of Alabama, said in the public hearing that he “absolutely loved” HB 17. He suggested language that the SSUT be distributed in the same way as other sales tax receipts.
“So, it’s treating it like its a local sales tax and that’s up to the locals to how those local sales tax receipts are divided,” he said. “Some of it goes to schools.”
But other education groups expressed concerns that the bill as filed does not require local governments to put the revenue toward schools.
Sally Smith, executive director of the Alabama Association of School Boards, who opposed the bill, said that only 15 counties and cities shared their SSUT with local boards of education. One of those, Smith said, required a constitutional amendment.
“Every time you take money out of the ETF, you’re making a values decision, because there are things in the ETF that we’re not funding,” she said. “For example, right now there is no protected line item for school safety in the ETF, yet we in this legislation want to subsidize gun safes for individuals.”
In the committee meeting, Rep. Joe Lovvorn, R-Auburn, said that England’s bill would be linked to a bill he sponsored, HB 257 which would create a sales tax holiday for some outdoors equipment.
Lovvorn said that the bill would be a “fairness bill” to align the brick-and-mortar stores with online sellers. He said a local hardware store can pay more in state taxes than a billionaire online retailer.
“And so is that fair?” he said. “I never see those names on the back of a little league jersey.”
With most sales tax revenue going to the Education Trust Fund (ETF), Lovvorn’s bill would remove funding from the state budget. England’s bill could potentially provide education funding at the local level.
Neither England’s bill nor Lovvorn’s bill were voted on Wednesday.