Raise sales tax or decrease use tax?

Published 12:01 am Thursday, December 10, 2015

County must address tax issue.

To avoid being sued, the Covington County Commission needs to reduce the county’s sales and use tax, or increase its sales tax.

That was the advice presented by county attorney Stacy Brooks in a workshop meeting Wednesday.

Brooks said the Covington County – as well as many other counties in Alabama – has been notified by the Alabama Department of Revenue that the U.S. Supreme Court ruled in a Missouri case that having a higher use tax than sales tax is a violation of the Commerce Clause of the U.S. Constitution.

Covington County levies a 1 percent sales tax on items purchased locally, but currently collects a 1.5 percent sales and use tax on items such as automobiles, equipment, or construction supplies purchased outside of the county. The sales and use tax was increased from 0.5 percent to 1.5 percent in 2007.

For instance, county administrator Karen Lawson explained, the county receives payments from Amazon, the online retailer, for purchases made by Covington County residents. When people purchase tags for automobiles purchased out of town, they also pay taxes, she said. And when companies purchase equipment and construction materials, they self report the taxes owed. RDS, which collects sales taxes for the county, also monitors those kinds of purchases, she said.

According to figures provided by RDS and shared with commissioners Wednesday, if the use tax had been equal to local sales taxes in the 2014-15 fiscal year, the county would have collected $397,752 less revenue.

In the same period, if the countywide sales tax had been raised by 0.5 percent to equal the sales and use tax rate, it would have generated an additional $3.6 million.

Brooks said the county is not required to change either tax, but opens itself up to a potential class action lawsuit if it doesn’t act.

Chairman Bill Godwin urged commissioners to take some kind of action.

“We’ve got to do something by January in order for (Rep. Mike) Jones to introduce the legislation,” he said. “We need to talk with all entities affected by this decision, and see how they would be impacted.”

Commissioners took no action, but asked Lawson to make a recommendation to them.