Alabama Worst in U.S. For Sales Tax Red Tape

Alabama cities and counties depend heavily on revenues from sales taxes.

Unlike other states, sales taxes are the largest single source of tax revenue for Alabama municipalities and many counties.

With Amazon and online sales growing exponentially, brick-and-mortar store sales and their sales tax collections are plunging, while the Alabama Legislature has offered a limited amnesty and one-stop tax filing and payment for Amazon and other e-tailers who voluntarily register with the State Dep’t of Revenue.

Frank Brocato, the Mayor of Hoover, complained…”the effect of online sales is causing his city, which annually takes in $4 billion in retail sales, to take a pretty sizable revenue hit…if the Galleria takes in $1 million in sales today, that equates to $30,000 in revenue. However, if residents spend that $1 million on the internet, the city would only receive $550.”

Potentially, a big win for local governments—with strings attached

The U.S. Supreme Court’s recent landmark decision involving Wayfair and Newegg and the new “economic nexus” rule could be a win-win for both our in-state retailers and the state, county and city budgets that receive the “expected” sales tax revenues from out-of-state retailers who previously didn’t charge sales tax to their Alabama customers.

Some local governments reportedly don’t want to give up control

I italicize “expected,” because in order to legally collect this new revenue from out-of-state retailers, and perhaps from in-state retailers who deliver across city and county lines, too, our local governments (including Birmingham, its suburbs and Jefferson, Shelby and Tuscaloosa Counties) must give up some of their control over sales tax administration.

Alabama is considered to be one of the worst three, if not THE worst, state in the U.S. when it comes to red tape in sales tax compliance. That’s primarily because we’re the only state that allows each and every city and county to impose and collect its own sales, use and rental taxes. And many of them have chosen that option, either doing it themselves or contracting it out to one of several “private auditing firms,” some of whom charge contingency fees on business license tax audits. Audit horror stories abound.

The Supreme Court ruled that the decades-old sales tax collection rules can change to reflect the new economy, but only if a state and all its local governments at least come close to following the Streamlined Sales and Use Tax Agreement criteria — a single audit and appeals process for the state and all local governments; a single point of filing; a uniform set of taxable and tax-exempt items, simplified sales tax rates; etc.

We’ve tried at least twice to pass legislation for Alabama to join the SSUT Compact, but you can still see the tire tracks on my back from getting run over by the self-administered local governments and their contract auditing firms.

With the Supreme Court’s carrot-and-stick encouragement, however, let’s hope we can all come together in March and enact some common-sense, simplified tax compliance rules for our in-state retailers to follow.

Hibbett’s is a good example. As mentioned, the Alabama Legislature has already made sales tax compliance relatively easy for its e-competitors such as Amazon, Overstock and Zappos, so why not do the same for our own in-state retailers?

Typically, when tax compliance is made easier, state and local tax revenues increase. Everybody wins.

The complete article, "Alabama Worst in the U.S. for Sales Tax Red Tape," first appeared in David Sher's blog, ComebackTown on January 2, 2019. 

Sher: Alabama worst in the U.S. for red tape
ComebackTown is published by David Sher to begin a discussion on a better Birmingham. David Sher is Co-Founder of  AmSher Compassionate Collections  and past Chairman of Birmingham Regional Chamber of Commerce, ONB, and CAP. Let's turn Bi...
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The article, "Alabama Worst in the U.S. for Sales Tax Red Tape," was republished by Alabama Daily News on January 3, 2019.