Schools are the winners and the Morgan County Commission is the loser if Gov. Kay Ivey signs a local bill redirecting more than $500,000 in online sales taxes previously retained by the commission.
State Sen. Arthur Orr, R-Decatur, said the governor “generally always” signs local bills unless they are related to some kind of controversy such as alcohol or tax increases.
He sponsored the bill that will force the commission to distribute almost all of the online sales tax money it receives to the public school systems and certified volunteer fire departments in Morgan County.
Had the local bill been in effect in 2018, Decatur City Schools would receive about $188,000, Morgan County Schools about $246,000 and Hartselle City Schools about $66,000. The commission would have kept about $27,000 as an administrative fee and volunteer fire departments would have shared about $7,500.
Since 2016, the Morgan County Commission has boosted its budget with more than $1.3 million in online sales taxes. In 2018, the county received $534,623, according to the Department of Revenue. School leaders said the county has not shared any of the online revenue with them.
The local bill, which Orr said was requested by superintendents Michael Douglas of Decatur City, Dee Dee Jones of Hartselle City and Bill Hopkins Jr. of Morgan County, passed in the state House and Senate.
Morgan County Commission Chairman Ray Long called the bill unfair and said the county will have to “make adjustments” in its new budget, which starts Oct. 1.
“We’ll have to look at where we are spending the money, but this is what it is so we’ll adjust and move on,” he said.
The local legislation is related to the statewide 2015 Simplified Sellers Use Tax Remittance Act, which allows online sellers who ship to Alabama to collect sales taxes the state and local governments otherwise would not get. Mandatory provisions of the amended act follow a U.S. Supreme Court ruling last year allowing states to collect taxes on online sales, regardless of where the seller is located.
The state keeps 50% of the online revenue and splits 50% between county and city governments. The Education Trust Fund receives 25% of the money that the state keeps and the General Fund receives 75%.
The Alabama Department of Revenue collects and distributes the other 50% of online revenue to county and municipal governments based on their populations. The state law does not specify how or whether county and city governments should distribute the money.
Long argued the revenue is new money that the county is entitled to keep, and that a local law is unfair when the state law allows other counties to retain the funds. School leaders said the sales tax money should go where it would if people made their purchases in brick-and-mortar stores.
Rep. Terri Collins, R-Decatur, who is chairwoman of the House Education Policy Committee, agreed with local school officials and sponsored the bill in the House.
District 3 Commissioner Don Stisher said the county’s budget will take a “significant hit” and he wishes the school systems and county could have worked out “a more comfortable compromise.” He said the county will have to make some adjustments and it may be evaluating allocations to nonprofit organizations.
“I support education, but a sudden drop in revenue puts us in a tough situation,” Stisher said.
The state will continue to send online sales tax revenue to the Morgan County Commission, but if Ivey signs the bill into law, the commission will be allowed to keep only 5% of the money for “administrative purposes.”
Eighty-five percent of the remaining funds will go to the three public school systems, to be distributed proportionally based on enrollment. Another 1.5% of the remaining funds will go to certified volunteer fire departments and 13.5% to Morgan County Schools. The bill's formula mimics how the county divides sales tax collections from brick-and-mortar stores.
Hartselle City Schools Chief Financial Officer Bradley Colburn, who is a former state auditor, said this is the way the money should be distributed.
“It shouldn’t matter if the purchase is made online, it’s still sales taxes,” Colburn said.
The importance of the issue for local superintendents is underlined by an upward trend in online sales. Nationally, according to the Census Bureau, online sales accounted for less than 4% of all retail sales in 2009, a number that had steadily grown to 10.2% in the first quarter of this year. Also in the first quarter, dollars spent in e-commerce increased six times as fast as other retail.
If the trend continues, the amount of money redirected by Orr's local bill will continue to increase.
County governments in Lawrence and Limestone counties do not share the online revenue they receive, but city councils in Hartselle and Athens do.
The online sales tax law has generated $1.088 million for Decatur, and until December, the city shared the revenue with the school district. The city has since discontinued the payments, arguing they are not required by the state law. Orr's bill does not affect the city's use of online sales tax dollars.