County doubles internet sales tax revenue
Published 3:00 am Saturday, September 14, 2019
Pike County is expected to collect twice as much revenue in the current fiscal year as it did last year.
County administrator McKenzie Wilson said the county has already brought in $235,000 in internet sales tax and that number is expected to reach $270,000 when the fiscal year closes out at the end of September.
The revenue has risen drastically since Alabama began collecting revenue on a voluntary basis from online retailers in 2016.
In FYE2016, Pike County saw only $3,000 in internet sales tax revenue, with only a few months being collected before the end of the fiscal year. Until January 2016, Alabama did not see any revenue from internet sales at all. Alabama citizens could go on the Amazon website and purchase any item without paying a cent in sales tax. So the legislature introduced the Simplified Sellers Use Tax (SSUT) to begin bringing in those funds the state was losing each year.
At that time, there was no requirement for any company with no physical presence in the state to collect and remit sales tax. Alabama residents were instead obligated to file the sales taxes to the state themselves, but few residents did so and the Department of Revenue could not track and collect the money.
The SSUT was offered to companies as a voluntary endeavor that would allow them to “lock in” a flat rate of 8 percent on all purchases instead of having to remit taxes based on the various different rates around the state.
The state collects 4 percent of that, of which 75 percent goes to the general fund and 25 percent to the Education Trust Fund. The remaining 4 percent is split down the middle between counties and municipalities and then distributed based on population.
Revenue rose to $64,000 in FYE2017 as major retailers such as Amazon began to collect sales tax voluntarily to lock in the 8 percent rate offered by the state.
In FYE2018, the county brought in $135,000 as more and more small retailers saw the tides changing and joined the voluntary program.
“On June 21, 2018, the U.S. Supreme Court effectively struck down the physical presence requirement that historically created nexus for sales tax purposes,” said Nancy Dennis, Director of Public Relations for the Alabama Retail Association.
In October 2018, the state began applying the existing rule requiring retailers with an “economic nexus” in the state to remit sales tax, including online companies. Remote sellers with annual Alabama sales in excess of the rule’s $250,000 small seller exception have been mandated to register for the SSUT program.
As of Jan. 1, 2019, cities get 60 percent and counties 40 percent of the 4 percent in simplified sellers use tax that goes to local governments. Formerly, counties and municipalities split the revenue evenly. Another change that began on the first of the eyar is the application of the tax to “online marketplaces,” meaning sites like Amazon must remit taxes on sales by smaller third-party sellers and not just on Amazon merchandise. Dennis said that has made a big impact on the amount of sales tax revenue coming in.
Local school officials had expressed concern about the allocation of the tax, as only 1 cent of the 8-cent tax goes to Alabama’s Education Trust Fund budget and none of the 4 cents that come to Troy or Pike County are allocated for the school system. The majority of Pike county’s local sales tax is split between the Pike County School and Troy City School systems. The concern is that as online shopping increases, local sales tax could decline, resulting in a dwindling revenue stream for the schools.
But so far, Pike County has actually seen local sales tax continue to grow even as online sales tax revenue grows at a faster pace. Wilson said the county is on pace to collect approximately $965,000 in sales tax compared to $921,000 last year.
Dennis said this is in part due to the tax “leveling the playing field” between online-only retailers and brick-and-mortar stores.
“This has done a great deal to equalize the online-only retailers and the physical storefronts,” Dennis said. “It used to be an unfair advantage for the online retailers.”