Alabama Cities Challenge Remote Seller Tax Program

A Legal Battle Over Local Revenue

A major legal challenge, known as the Alabama SSUT lawsuit, is underway in Alabama that could reshape how remote sellers are taxed. As a result, local governments may see major funding shifts. The cities of Tuscaloosa and Mountain Brook, along with the Tuscaloosa City School District, have filed a lawsuit against the state’s Simplified Sellers Use Tax (SSUT) program, arguing that it unlawfully diverts millions in local tax revenue and violates the Alabama Constitution.

The lawsuit alleges that the tax commissioner exceeded his authority by allowing businesses that don’t meet the legal definition of “remote sellers” or “marketplace facilitators” to participate in the SSUT.

Background on the SSUT Program

Established in 2015, the SSUT was designed to simplify tax compliance for out-of-state sellers, especially after the U.S. Supreme Court’s 2018 Wayfair decision, which permitted states to require remote sellers to collect sales tax.

The program allows remote sellers and marketplace facilitators to collect and remit a flat 8% sales tax on Alabama transactions. This tax is split evenly between the state and local governments—regardless of where the sale occurs.

By comparison, under the traditional tax system, sales in Tuscaloosa are taxed at 10%, with 6% going directly to the city.

Businesses selling into Alabama should understand how SSUT interacts with traditional sales and use tax compliance.

The Cities’ Claims

The cities argue that local governments are losing out on critical funding. This misuse will cost Tuscaloosa $14.6 million in local revenue this fiscal year. In addition, the cities allege the Department of Revenue misclassified dozens of companies.

Key concerns raised include:

• Retailers with physical presence in Alabama using SSUT to avoid paying full local taxes.
• The Alabama Department of Revenue allegedly misclassifying companies, including food delivery services and large retailers.
• Delegating tax authority in ways that undermine local government funding.

Tuscaloosa school superintendent Mike Daria summarized the concern:

“Local dollars should stay local – supporting our educators, strengthening our classrooms and ensuring our schools continue to make strong progress for our children.”

Arguments in Defense of the SSUT

Not everyone agrees with the lawsuit. The Association of County Commissions of Alabama (ACCA), representing all 67 counties, passed a resolution urging lawmakers to preserve the SSUT. (Alabama Department of Revenue SSUT program)

Supporters argue that:

• The SSUT simplifies Alabama’s complex local tax system.
• It ensures tax compliance from remote sellers.
• Eliminating or restricting the program could disrupt essential services.

Charles Maniace, vice president of regulatory analysis and design at a tax compliance firm called Sovos, reinforced this point:

“These localities should be grateful that remote sellers are collecting tax, that they come into compliance with Alabama’s rules and that the localities are sharing in some of that revenue, along with the state.”

Tax experts also warn that dismantling SSUT could create Commerce Clause challenges, since requiring remote sellers to navigate hundreds of local tax rates may be considered an undue burden on interstate commerce.

What Businesses Should Expect

Even if the lawsuit fails, it may still prompt legislative changes to the SSUT program. Possible outcomes include:

• Adjusting the SSUT rate.
• Redefining eligibility criteria.
• Increased audits and scrutiny of participating businesses.

Businesses currently using SSUT should monitor this case closely, as reclassification or new compliance rules could affect their tax obligations in Alabama.

Why the Alabama SSUT Lawsuit Matters

The outcome of this lawsuit could have far-reaching implications for:

• Alabama’s state and local tax revenue.
• The balance between simplified tax compliance and local funding needs.
• How remote sellers and marketplace facilitators operate in the state.

For more on how different states enforce nexus and remote seller tax rules, see our Sales Tax Nexus Map.

Final Thoughts

The lawsuit over Alabama’s Simplified Sellers Use Tax program highlights the ongoing tension between tax simplification and local revenue protection. Whether the courts uphold the SSUT or force changes, businesses should monitor the Alabama SSUT lawsuit closely for potential compliance changes.

At Clarus Partners, we help businesses navigate complex and evolving state and local tax rules—from sales tax and SSUT compliance to audit defense and advisory support. If you’re selling in Alabama or other states with complex tax regimes, we can help you stay compliant while reducing risk.