SPEAKIN’ OUT NEWS
The City of Madison has voluntarily dismissed its lawsuit challenging Alabama’s online sales tax distribution system, known as the Simplified Sellers Use Tax (SSUT), signaling a shift toward working with state lawmakers on a potential legislative solution.
In a statement on last Wednesday, Mayor Ranae Bartlett said the city’s ability to fund public safety, education, parks, and infrastructure has been negatively impacted by the state’s current SSUT distribution. “I look forward to working with the Alabama legislature to find a solution that ensures tax money generated in Madison stays in Madison,” she said.
Madison joined the legal challenge in December 2025 after Tuscaloosa filed suit in the Montgomery Circuit Court. Other plaintiffs included Mobile, Hoover, Mountain Brook, and Tuscaloosa City Schools. The plaintiffs argued that the SSUT unfairly distributes online sales tax revenue, depriving municipalities of funds they would otherwise receive from local purchases.
The lawsuit followed a history of municipal concerns over the 2016 creation of the SSUT, designed to collect sales tax on online purchases across Alabama. Under the SSUT system, which applies an 8% tax, 50% of revenue goes to the state, divided between the General Fund and the Education Trust Fund. The remaining 50% is allocated to local governments, with 40% to counties and 60% to municipalities, both based on population rather than the point of sale.
Cities, including Madison, have contended that the SSUT does not follow traditional destination-based sales tax principles. When residents make purchases online, municipalities receive less revenue than they would from the same purchase at a local brick-and-mortar store. This has fueled disputes, particularly as online shopping has grown significantly in Alabama. SSUT collections jumped from $386.3 million in fiscal 2020 to $851.1 million in 2024, according to the Alabama Department of Revenue.
At the request of state legislative leadership, Madison and other participating cities agreed to dismiss their claims without prejudice. This move allows lawmakers to engage in discussions to find a legislative solution while preserving the cities’ right to reassert the lawsuit if negotiations do not yield a timely and adequate resolution.
Officials say the goal of legislative engagement is to ensure that online sales tax revenue generated by city residents benefits local communities and supports essential services. City leaders have emphasized the importance of fairness in tax distribution, noting that local governments rely on sales tax funds to provide public safety, maintain infrastructure, and support education programs.
Mayor Bartlett called the voluntary dismissal a “good faith effort” to pursue a solution through collaboration with the legislature while keeping legal options open. Municipal leaders hope that a legislative fix will resolve longstanding concerns over SSUT allocations and provide cities like Madison with funding that more closely reflects the revenue generated within their borders.