Mountain Brook is joining the city of Tuscaloosa in a lawsuit challenging Alabama’s current distribution of revenue collected under a state tax.

The Simplified Sellers Use Tax, which charges an 8% tax on online purchases, is distributed by the state with 50% going to state funds and 50% to cities and counties based on population, not where the purchase originated. Officials argue that it’s unfair to municipalities like Mountain Brook, where its residents do a lot of online shopping.

“Our residents are already paying this tax, and yet much of it never makes it back to support the services they rely on,” Mayor Stewart Welch 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.”

The city of Tuscaloosa voted earlier this month to pursue legal action against the state.

Tuscaloosa Mayor Walt Maddox said the city plans to file the lawsuit in the next few weeks and hopes it will redirect the funds to the cities that generate the sales.

During a recent city council meeting, Mountain Brook officials said the sales tax issue has been on their radar for years, and they are ready to take action now that a “bigger player” like Tuscaloosa is taking initiative.

“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 during the council meeting.

Maddox and Mountain Brook officials said online delivery services like Walmart, DoorDash and Shipt have a physical “nexus” in the cities, including employees, trucks and stores where products are picked up before delivery.

“Commercial entities with the physical nexus within a local community are being ignored and classified as SSUT. That actually reverses decades of how sales tax are remitted throughout Alabama,” Maddox told AL.com.

Maddox and Mountain Brook officials said they fear the increasing use of online services could erode the sales tax revenues that fund essential services like trash pickup, firefighter equipment, parks and road maintenance.

“Cities like Mountain Brook and Tuscaloosa, who are strong financially…we’re not asking for anything other than to keep the taxes we collect that the taxpayers expect to be invested into our classrooms and for public safety and for our roads and bridges,” Maddox said.

According to the Alabama Department of Revenue, the Simplified Sellers Use Tax generated $851.2 million in 2024.

In 2022, Tuscaloosa received $6 million in SSUT funds, Mountain Brook got $1.4 million and Birmingham got $12,138,505, according to a Public Affairs Research Council of Alabama report.

Maddox said the formula will cost Tuscaloosa an estimated $14.6 million in revenue this year.

Steven Boone, the Mountain Brook finance director, said that while there is no definitive way to calculate the exact revenue loss, only about 2% of the 8% online sales tax is distributed to municipalities. However, many cities like Mountain Brook have local sales tax rates of 3% or more.

“This means there is a clear shortfall when compared to what those cities would receive if local sales taxes applied to online sales,” Boone told AL.com in a statement.

“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.”

Supporters for the current tax structure said changing it could jeopardize millions of dollars in revenues to the state.

Officials argue that market facilitators like DoorDash don’t physically produce or market products in the cities they serve and that the tax would also have to be applied by other online retailers, like Amazon.

“Going into that law and tinkering with the definition of a marketplace facilitator, will put the whole program at risk,” Association of County Commissions of Alabama Sonny Brasfield told AL.com in January. “Counties will not be supportive of that in any shape, form or fashion.”

Mountain Brook officials maintain that the tax distribution is unfair.

“We’ve watched this imbalance for years while continuing to invest in public safety, infrastructure and quality of life. 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,” Mountain Brook Council President Virginia Smith said in a statement.