The Problem With the Occupation Tax

Posted by Rep.Greg Canfield on 15-May-2009

To best understand how Jefferson County got to this place with the occupation tax requires a quick review of the history of this tax. First, it’s important to know that under the Alabama Constitution of 1901 counties do not have authority to levy taxes unless authorized by the Legislature. Consequently, the Legislature enacted Act 1967-406 to authorize counties with a population above 500,000 (this specifically applied only to Jefferson County)to levy a license or privilege tax upon any person engaged in business as long as that person was not already paying a license tax to the State of Alabama. Subsequently, Jefferson County passed Ordinance 1120 to impose an occupation tax only to those persons not required to purchase a license from the state. Historically, four different legislative acts have been enacted on this issue and a total of six lawsuits adjudicated since 1987 on this tax.

The problem today stems from the passage of a 1999 legislative act passed to repeal the original Act 1967-406. The repealing Act 1999-669 was litigated and has ultimately been upheld as law in the recent order of January 12, 2009 by Circuit Judge David A. Rains. The bottom line on the Jefferson County Occupation Tax is that it no longer is a legally valid tax and the approximate $75 million per year collected from this tax is to be lost without action by the Legislature to pass a new occupation tax.

The controversy in the Legislature today relates to the fact that of the several bills introduced this session, only HB 811, sponsored by Rep. John Rogers, is in position for passage prior to the end of this Regular Session. Originally, HB 811 passed the House with numerous earmarks and removed the exemptions in the original Act 1967-406. When HB 811 was referred to the Senate the bill was amended by stripping out all previous earmarks and restoring the exemptions of the original Act 1967-406. As sponsor of HB 811, Rep. Rogers controls his bill and its movement to the floor of the House to concur or non-concur with the amended Senate version of his bill. In numerous discussions with Rep. Rogers he notes reservations about the amended version from the Senate and has remained steadfast in his decision to withhold HB 811 from action. This version remains controversial to some and is considered to have possible constitutional problems.

I have personal reservations about the constitutionality of any occupation tax. The Alabama Constitution generally limits authority to county governing bodies to those expressly granted by the Legislature (the wisdom of this Constitutional limitation can be debated in another forum). The 25th Amendment to the Alabama Constitution provides for a State income tax, but does not expressly grant such authority to a county. In my opinion, Act 1967-406 and all legislation following it, only provides for the county to levy a business license tax or privilege tax and since not expressly granted by the Constitution, any tax on gross receipts is an income tax and therefore may be unconstitutional. With a history of six lawsuits following the occupation tax, it is apparent that this tax has always been on shaky legal ground.

Even with the above being stated, it is a fact that Jefferson County has operated in a manner that built a dependency on the revenue generated by the occupation tax. It is now a matter of public policy that should qualify for legislative deliberation, debate and action. Even though I have personal reservations regarding the constitutionality of this tax I welcome movement of HB 811 for consideration and an up or down vote in the Alabama House of Representatives. Absent any action on HB 811, the only remaining action to be taken will reside with the current appeal by Jefferson County to the Alabama Supreme Court.