Calhoun County could collect more money for services such as road paving, policing and firefighting from out-of-state online retailers starting next year.
Gov. Kay Ivey signed a law last week that lets Alabama potentially collect sales taxes from more online retailers. The goal is to generate more revenue for state, city and county services while leveling the playing field between online and traditional brick-and-mortar retailers.
The new law, which goes into effect in January, is an update to a voluntary program the state started in 2015 to get sales tax money from out-of-state retailers online.
“That was an important amount of legislation from a county standpoint,” said Mark Tyner, Calhoun County administrator. “If that law hadn’t passed, we would have been out of a tremendous amount of money.”
Specifically, the update requires online retail giants like Amazon and eBay to collect and remit use taxes on sales made through their marketplaces by third-party sellers, or to report such sales to the Alabama Department of Revenue and notify customers of use tax obligations.
According to the state, around 200 sellers currently participate in the program, including Amazon. The program has so far generated more than $87 million in tax revenue, with more than $27 million collected in the first four months of the 2018 fiscal year.
The governor’s office estimates the law update could result in an increase of up to $40 million annually in online sales tax money.
The money is divided between the state, cities and counties.
Tyner said the county has collected around $500,000 since the program began, all of which has been placed in the General Fund.
Cory Salley, finance director for the city of Anniston, said the city has seen steady growth in online sales tax collection and has so far received $187,000, all of which is placed in the General Fund.
“That’s what we use to pay for the majority of our services, like police, fire and public works,” Salley said.
Salley said he expects the city will get more money because of the new law.
“It’s hard to tell exactly how much, but it’s safe to assume it will increase and I’m excited about that,” Salley said.
Through the voluntary program, eligible online-only retailers pay a flat 8 percent tax rate instead of local sales and use taxes paid by brick-and-mortar stores. As an incentive to participate in the program, the law lets participants deduct and keep 2 percent of the use tax properly collected if it is remitted to the Revenue Department on time.
Also, program volunteers get to keep their same tax rate even if state or federal laws are passed that require higher payments or a more complicated process.
Many online retailers have long avoided paying sales taxes using a loophole based on a 1992 Supreme Court decision. Internet retailers do not have to charge local sales taxes in a state if they do not have a physical presence there, according to the decision.
However, the Supreme Court is set to hear oral arguments on Tuesday in a case on whether the earlier loophole decision should be overturned.
Besides expanding the scope of the law, the update changed how some of the money collected is distributed. Cities will now get 60 percent of the local distribution, while counties will get 40 percent. Previously, the distribution was split evenly.
Sonny Brasfield, executive director of the Association of County Commissions of Alabama, said the distribution change was a concession made to get the update law passed, but that it shouldn’t hurt counties.
“Counties are still going to get more money out of this than they receive today,” Brasfield said, referring to the expected growth. “And I think this program has already been positive for all 67 counties.”
In-state retailers have also benefited from the program and should do so even more because of the update, said Nancy King Dennis, spokeswoman for the Alabama Retail Association.
“It’s bringing those online-only retailers that haven’t been collecting sales tax and bringing them closer to a level playing field,” Dennis said. “Amazon has been collecting for a while, but have not been collecting their third-party vendors.”
Bob Couch, owner of Couch’s Jewelers in Anniston, said he supported the sales tax program.
“I think it’s only fair,” Couch said. “It just makes sense to have all vendors operate on a level playing field.”
Bill Wakefield, president and CEO of the Anniston-based Wakefield’s Inc., which runs the Martin’s Family Clothing retail chain, said he didn’t think local retailers needed the help that the law provides.
“We retailers have nobody to blame but ourselves,” Wakefield said. “If you give customers a good experience and a good price, they’ll come … the fact that they’re making online retailers pay doesn’t really matter to me.”
King said retailers have seen improvement in recent years, in part because of the program.
“Retail sales are going really well,” she said. “As this has happened, overall sales have been increasing for brick and mortar stores too.”