The City of Madison has voluntarily dismissed its legal challenge over Alabama’s online sales tax distribution system, pivoting instead to work with state lawmakers on a potential legislative fix.
In a statement released on Wednesday, Madison announced the city is withdrawing from the lawsuit challenging the state’s handling of the Simplified Sellers Use Tax, known as SSUT, in what leaders described as a good faith effort to pursue a solution during the current legislative session.
“Our City’s ability to provide for public safety, education, parks, and roads and infrastructure has been negatively impacted by the state distribution of internet sales tax,” Madison Mayor Ranae Bartlett said in a statement. “I look forward to working with the Alabama legislature to find a solution that ensures tax money generated in Madison stays in Madison.”
Madison joined the lawsuit in December 2025 after the City of Tuscaloosa filed suit in Montgomery Circuit Court. Mobile, Hoover, Mountain Brook and Tuscaloosa City Schools were also among the plaintiffs arguing that the current SSUT structure unfairly distributes online sales tax revenue.
At the request of Alabama legislative leadership, Madison and other participating cities have agreed to voluntarily dismiss their claims to allow time for discussions with lawmakers. By dismissing the case without prejudice, the city preserves its ability to reassert its legal arguments if negotiations fail to produce what leaders call a timely and adequate solution.
The dispute centers on how Alabama distributes revenue collected through the SSUT, the statewide system created in 2016 to collect sales tax on online purchases. The tax is set at 8%.
Under the current system, 50% of SSUT revenue goes to the state, where it is divided between the General Fund and the Education Trust Fund. The remaining half is distributed to local governments, with 40% going to counties and 60% to municipalities, both based on population.
Cities including Madison have argued that the structure does not follow traditional destination-based sales tax principles. When residents shop online, municipalities do not receive the same share of revenue they would if the purchase were made at a local brick-and-mortar store.
The SSUT has grown significantly in recent years, generating $851.1 million in 2024, up from $386.3 million in fiscal 2020, according to the Alabama Department of Revenue.
