Madison joins other cities in dismissing lawsuit against state over online tax
MADISON – The city of Madison has voluntarily dismissed its legal challenge to the state’s handling of the Simplified Sellers Use Tax (SSUT) in a good faith effort to seek a legislative solution with the Alabama legislature.
In December 2025, the City of Madison joined a lawsuit filed by the City of Tuscaloosa. At the request of Alabama’s legislative leadership, Madison and other cities will now voluntarily dismiss their claims to pursue a legislative solution during this legislative session.
By dismissing this legal challenge without prejudice, city leaders say it will be able to reassert its legal arguments should discussions with the Alabama legislature fail to produce a timely and adequate result.
The SSUT, an 8% tax on online purchases, is distributed by the State, with 50% going to state funds and the remaining 50% allocated to local governments (cities and counties). Within the state’s share of the distribution, the General Fund receives 75% and the Education Trust Fund receives 25%. Within the local share, municipalities receive 60% of the revenue and counties receive 40%. The revenue going to each municipality and county is divided based on population.
“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,” said Madison Mayor Ranae Bartlett. “I look forward to working with the Alabama legislature to find a solution that ensures tax money generated in Madison stays in Madison.”
The cities of Tuscaloosa, Montgomery and Hoover also announced they were voluntarily dropping the suit.
State Rep. Rex Reynolds (R-Huntsville), House chairman of the General Fund budget committee, said the lawsuit being dropped was an “opportunity to have dialogue” with the cities.
“I think at this point, really, what I can say is that now that the suit has been dropped, I expect immediate and much dialogue related to what we may or may not be able to do in the future,” Reynolds told 1819 News on Wednesday. “We were just really in a position that we couldn’t be talking about it while the lawsuit was filed. Now, this will give us the opportunity to have dialogue.”
