Constitutional amendment would make Morgan online sales tax distribution permanent

Mar. 1—A local law diverting most of the millions of dollars per year in online sales taxes from the Morgan County Commission to school districts would have far more permanence if a bill filed last week passes and voters approve the tax allocation as a constitutional amendment.

State Sen. Arthur Orr, R-Decatur, sponsored the 2019 local law that reduced the County Commission's receipt of online sales taxes from 100% to 5%, redirecting the bulk of the taxes to the Morgan County, Decatur City and Hartselle City school districts, with small amounts redirected to volunteer fire departments. Orr also sponsored Senate Bill 242, filed last week, which if passed would incorporate the 2019 law into the state constitution.

The constitutional provision, like the law upon which it is based, would apply solely to Morgan County.

Orr said he was approached by local superintendents about the permanence of the 2019 law. He advised them that it could be changed or repealed in a future legislative session either through a new local law or as an "unintended consequence" of statewide legislation. A local constitutional amendment would not be vulnerable to future legislative action and could only be changed by a subsequent constitutional amendment.

"We try to keep an eye on all the bills coming through, but one could slip through. And I'm not going to be here forever," Orr said.

Even if the constitutional amendment were to be voted down, Orr said, the 2019 law would remain in effect and the current distribution of online taxes would continue unless it was changed in a future legislative session.

The money involved is substantial. In calendar year 2021, the Morgan County Commission received $2.66 million in online sales tax revenue. Without the local law the money would have been available to the commission to spend for any legal purpose. Because of the law, the commission had to distribute $2.26 million to the schools and about $400,000 to volunteer fire departments.

The online sales tax revenue going to the county and redirected to the schools and volunteer fire departments has steadily increased since 2019. The 2021 revenue was $604,657 more than 2020 revenue. In February, the online sales tax revenue payment was $324,706, a $56,524 increase over February 2021.

Morgan County Commission Chairman Ray Long said the 2019 law and the bill that would give it constitutional permanence are examples of "legislative overreach," but the commission has no plans to actively oppose the amendment if it shows up on the ballot.

"We totally support the schools and don't want to take money away from them, but this law has been tough on the Sheriff's Office and on the commission," he said, expressing frustration that Morgan County has lost most of the benefit from online sales while other counties have not.

Decatur City Schools Superintendent Michael Douglas said he is confident Morgan County voters will pass the constitutional amendment, but he views putting it on the ballot as a "win-win."

"If it passes, we get the permanence of a constitutional amendment. If it doesn't, we'll see no change," he said.

Orr's bill to place the local constitutional amendment on the ballot would be voted on by the entire Legislature, but he believes the local delegation supports it and typically lawmakers from outside the area will approve such local bills with no discussion.

In the unusual event that even one legislator in the state votes against the bill, however, the constitutional amendment would show up on ballots statewide. If no lawmakers vote against the bill, it would appear only on Morgan County ballots.

Sales tax formula

Douglas said the online sales tax distribution put into effect by the local law was not a windfall for the schools, but simply mandated that schools receive the same tax benefit from online sales as they receive from brick-and-mortar sales.

"People are spending more online, and that means they're spending less at brick-and-mortar," he said.

The statewide Simplified Seller Use Tax (SSUT) law, which became mandatory for most online retailers Jan. 1, 2019, provides for an 8% online sales tax to be collected by the state, with a portion to be allocated to the general funds of county commissions.

The local law and proposed constitutional amendment, however, require the Morgan County Commission to redirect all but 5% of the online sales taxes it receives. It requires the commission to send 85% of the remaining funds to the three public school systems in the county, to be distributed proportionally based on enrollment. Another 1.5% of the funds are required to go to volunteer fire departments and 13.5% to Morgan County Schools.

The bill's formula divides the online sales taxes in roughly the same way brick-and-mortar sales taxes are divided.

The local law took effect Oct. 1, 2019, but the Morgan County Commission did not pass a resolution that was on its agenda to redirect the online sales tax revenue as required by the law. Hartselle City Schools filed suit the day the law took effect, and the other districts in the county quickly joined the lawsuit.

The Morgan County Commission fought the lawsuit, arguing that the statewide SSUT law superseded the local law, but an appellate court and ultimately the state Supreme Court ruled the Legislature had the power to direct the County Commission to redirect the online sales tax revenue it received.

Better for school bonds

Hartselle City Schools Superintendent Dee Dee Jones said the online sales tax revenue has benefited students, providing improved educational opportunities and allowing the system to begin construction of Crestline Elementary School after issuing a $25 million, 30-year bond.

Orr said one of the reasons for seeking a constitutional amendment and the permanence it provides is to facilitate such long-term bonds. Bond repayments require a steady revenue stream. While the local law combined with the Supreme Court ruling provide a degree of permanence, a constitutional amendment would provide more.

Like Douglas, Jones is confident Morgan County residents will support the constitutional amendment if it appears on the ballot.

Orr said he warned the superintendents that it would be up to them to make sure Morgan County residents understand the amendment before they vote on it. Specifically, he said they need to make sure voters understand it is not a tax increase.

Douglas said he's confident voters will understand.

"Not only is this not a tax increase, it's not even a renewal of a tax. Nothing changes with this amendment except it solidifies a law that's already in place," he said.

— eric@decaturdaily.com or 256-340-2435. Twitter @DD_Fleischauer.