Online sales skyrocket during pandemic

City’s revenue from online purchases up 108% in FY2020

The amount of money the city receives from the state’s simplified sellers use tax (SSUT), which is a system for collecting sales taxes from online purchases, increased 108% in fiscal 2020 to $1.3 million. SSUT revenues in fiscal 2021 are on pace to beat that amount by 56%, City Manager Jeff Downes said.

In January 2021, the city received about $160,000 from the SSUT, compared to about $20,000 in January 2017, Downes said.

The SSUT, created by the Alabama Legislature, allows online retailers to charge an 8% sales tax on each purchase rather than trying to figure out exactly in which county and/or municipality the buyer lives. The retailer sends that tax money to the state. The state keeps 4%, and the other 4% is split among cities and counties.

Some retailers like to opt into the SSUT program because they don’t have to track the location of purchases and the 8% amount is less than the average sales tax rate, which is typically between 8.5% and 10%, Downes said.

But some retailers, such as Apple, Target and Walmart, don’t use the SSUT system and pay the actual rates in whatever jurisdiction the purchases were made or items delivered.

Some city officials say the SSUT system is unfair because sales taxes collected on purchase made in Vestavia Hills are making their way all over the state instead of staying in Vestavia, Downes said. City leaders must constantly watch legislation to see if there are any changes, and while he appreciates online sales, he said it’s also important to continue supporting brick-and-mortar businesses.

Brick-and-mortar businesses offer more than just a product; they offer an experience, Downes said.

“You pay for the experience,” he said. “There is a uniqueness that some retailers can make to help that.”

Sales tax numbers from businesses physically located in Vestavia Hills are doing well, too, despite the pandemic, Downes said. For the first four months of fiscal 2021 — October through January, sales tax revenues from brick-and-mortar businesses are up about 17%, he said.

Having entertainment districts in the city also helps, Downes said, and having an online presence in addition to a physical store can also help.

The businesses that can do that well will succeed, he said. Online sales won’t disappear after the pandemic ends.

“We’ve got to realize that online sales have continued to grow, and in this COVID-19 and post-COVID age, these numbers are going to be larger than that [what they currently are],” Downes said.