Mountain Brook leaders say residents are paying millions in online sales taxes that never make it back to their community.
Now the city has joined a lawsuit arguing the state’s distribution formula is outdated, unfair and draining money from schools, roads and public safety.
The Simplified Sellers Use Tax, or SSUT, was created in 2015 to capture revenue from online purchases. The law imposes a flat 8% tax, with half of the proceeds going to state funds and the other half distributed to cities and counties based on population. What matters to cities like Mountain Brook is what the formula leaves out — purchases are not credited to the places where they actually occur.
“The state of Alabama does not have a clear way to say this amount is coming from Mountain Brook, this amount is coming from Vestavia, this amount is coming from Birmingham,” said Ashley Oliver, Mountain Brook’s revenue examiner. “Everything is just being thrown into one pot, and then it’s dispersed based on population alone. That’s something we would want, just a little bit more clarity.”
Mountain Brook thinks it’s missing some money — perhaps more than $1 million, and it’s hoping it can get the state of Alabama to agree.
LOCAL IMPACT
“Basically, we’re looking for reform of how the state is handling the SSU taxes right now,” Oliver said. “Currently, it’s based on population. Regardless of what the taxpayers are spending in each city in the state, if you have a larger population, you get a larger percentage of the SSU taxes.”
Mountain Brook is not a large city, not based on its population. But, Oliver said, there is a lot of spending that takes place within the city limits.
Photo by Solomon Crenshaw Jr.
Mountain Brook revenue examiner Ashley Oliver says the state's method of distributing sales tax collected from online sales may not be equitable for cities like Mountain Brook. “If you set up a uniform system where it’s only based on population, we may not be getting our fair share,” she said.
“If you set up a uniform system where it’s only based on population, we may not be getting our fair share,” she said. “I’ve worked with the finance director, Steve Boone. I’ve known him for years, even before I started here. He’s been working on a way to try to find a definitive way to see just how much we’re losing each year.
“We haven’t nailed it down to an exact number, but it’s at least a million dollars or more each year that we’re losing,” the revenue examiner said. “A lot of it is going to larger cities based on population.”
Boone said that while the city can’t determine an exact figure, there is a clear imbalance. “Only about 2% of the 8% online sales tax is distributed to municipalities,” he said. “This means there is a clear shortfall when compared to what those cities would receive if local sales taxes applied to online sales. Municipal budgets rely on predictable and adequate revenue streams. With rising demand for services, tight budgets are a constant challenge, and the current SSUT structure makes it more difficult to meet those demands.”
Oliver acknowledged that the state’s plan for distributing online tax based on population is simple. But smaller cities like Mountain Brook and Tuscaloosa could be spending more online and thus generating more in taxes.
“Inequality comes in if you have a city of a smaller population but the citizens could be spending double what a larger city is spending,” she said. “That tax money is going to the larger city. It’s not coming back to a city of our size. That’s where that inequality kind of comes in.”
THE LAWSUIT
The Mountain Brook City Council voted to join the lawsuit during its Aug. 11 meeting. City Attorney Ben Presley told the council the suit would challenge the constitutionality of the SSUT and seek injunctive relief from the Alabama Department of Revenue. “The goal is to hopefully be able to capture additional tax revenue that we feel should be going to the cities,” Presley said.
The legal filing argues that the SSUT program was created to address online retailers with no Alabama presence, but has since been applied to companies like Amazon, Walmart, Target and DoorDash — all of which operate warehouses, storefronts and delivery services in the state. Plaintiffs argue those companies no longer qualify for SSUT treatment and should be required to remit local sales taxes like other in-state retailers. The lawsuit also challenges the law’s “merchant choice” feature, which allows companies to opt into SSUT instead of traditional sales tax, as a violation of the Alabama Constitution.
Tuscaloosa, which filed the suit in August and brought in its school system as a co-plaintiff, claims the formula costs the city nearly $15 million per year. Mountain Brook’s estimate is far smaller, but city officials argue the impact is no less real. “It is unfairly distributing what should be rightfully our residents’ tax dollars to other parts of the state that aren’t as representative of that income generation as our residents,” Councilor Gerald Garner said.
Mayor Stewart Welch framed the issue in terms of fairness for residents. “Our residents are already paying this tax, and yet much of it never makes it back to support the services they rely on,” he said in a statement. “This is about fairness. Cities like Mountain Brook should receive a more equitable portion of the revenue generated by their own citizens.”
Council President Virginia Smith called the lawsuit a necessary step. “We’ve watched this imbalance for years while continuing to invest in public safety, infrastructure and quality of life,” she said in a statement. “Joining this lawsuit is a necessary step to advocate for the fiscal future of our city and ensure our ability to serve the community well.”
WIDER SUPPORT
Other cities have voiced similar concerns. In late August, the mayors of Alabama’s 10 largest cities released a joint statement calling for an overhaul of the Simplified Sellers Use Tax. The group, which includes Birmingham, Huntsville, Mobile and Hoover, said the distribution model is outdated and inequitable, and urged state leaders to revisit how online sales tax revenue is shared among municipalities.
Mountain Brook officials maintain they aren’t seeking to punish the state or dismantle the SSUT program altogether. Instead, they want the state to enforce its own rules — requiring companies with a physical presence in Alabama to pay the same local taxes as other businesses.
“As time goes on, if you see something’s not working in the best way,” Oliver said, “you kind of want to reform it and make some adjustments to it.”
Starnes Media’s Tim Stephens contributed to this report.
Understanding the online sales tax lawsuit
What is SSUT?
The Simplified Sellers Use Tax (SSUT) is a flat 8% tax Alabama collects on most online purchases. Created in 2015, it was originally intended for businesses without a physical presence in the state. The law allows half the revenue to go to the state, and the other half to be split among cities and counties — based only on population, not where the purchase was made.
Why is there a lawsuit?
Mountain Brook and Tuscaloosa argue the law is now outdated and unfair. They claim major companies like Amazon, Walmart and DoorDash still use SSUT to avoid paying local sales taxes — even though they have stores, warehouses and delivery operations in these cities. The lawsuit calls this unconstitutional and says it deprives communities of money that should support schools, roads and public safety.
What does it mean for Mountain Brook residents?
City leaders say residents already pay the tax — but most of that money goes elsewhere. They estimate Mountain Brook could be losing more than $1 million a year under the current system. If the lawsuit succeeds, more of the sales tax from online purchases could stay in Mountain Brook to fund local services and infrastructure.
Tim Stephens
What $100 in spending means for Mountain Brook
Online purchase (SSUT):
$100 purchase → $8 in tax collected
Mountain Brook receives ≈ $0.16 (about 2% of the tax)
In-store purchase (local sales tax):
$100 purchase → ≈ $3.00 goes directly to Mountain Brook (based on 3% local tax rate)
The gap: Mountain Brook loses about $2.84 per $100 purchase when residents shop online instead of in local stores.
Source: Mountain Brook Finance Director Steven Boone, City of Mountain Brook
