The City of Pelham has voluntarily dismissed its legal challenge regarding the State of Alabama’s administration of the Simplified Sellers Use Tax (SSUT) to provide the Alabama Legislature with the opportunity to address concerns raised by municipalities across the state.
In December 2025, Pelham joined litigation led by the City of Tuscaloosa and other Alabama cities challenging the current SSUT structure. The lawsuit argued that the program’s distribution formula unfairly impacts cities with strong retail bases by redistributing locally generated tax revenue based on population rather than where purchases occur.
Under SSUT, eligible online retailers collect a flat statewide 8 percent tax on certain purchases. While the tax is collected from consumers statewide, a significant portion of the local share is distributed based on population. As a result, sales tax revenue generated by Pelham residents from online purchases is not fully returned to the community where those dollars were spent.
According to estimates from Pelham’s finance department, the City experienced a net loss of more than $3.3 million in Fiscal Year 2025 under the current SSUT distribution structure. City leaders have also expressed concern about a “delivery service loophole,” which allows some delivery and marketplace platforms to be taxed under SSUT even when purchases are made from local businesses with a physical presence in Pelham. This practice further shifts locally generated tax dollars into the statewide pool rather than returning them to the City.
By dismissing the lawsuit without prejudice, Pelham preserves its ability to refile its claims if legislative discussions do not yield a timely and equitable solution.
“If the state is willing to engage in a genuine, collaborative effort to improve this system, we are ready to come to the table alongside other cities and school districts to find a fair and sustainable solution,” said Pelham Mayor Rick Wash. “The City of Pelham is committed to working with state leaders and our local government partners to resolve this issue. However, we cannot continue under a structure that requires our City to fund law enforcement, fire, and EMS services, infrastructure, and essential operations while the revenue generated by our residents is redirected elsewhere,” Wash added.
City officials emphasized that Pelham does not oppose online commerce. Rather, the City seeks a fair, modernized system that allows communities to retain the revenue needed to fund essential services, including public safety, infrastructure, and other core operations residents rely on.
Pelham will continue to work collaboratively with state leaders and fellow municipalities during the current legislative session to pursue a balanced and sustainable resolution.