III. Conclusions of Law - WSFA.com Montgomery Alabama news.

Occupational Tax Ruling

III. Conclusions of Law

A. Due and proper legal notice to the taxpayers and citizens of Montgomery County, Alabama has been published as specified by Section ll-81-222(d) of the Code of Alabama (1975). Such notice is sufficient for purposes of the due process clauses of both the Alabama and United States Constitutions.

B. The Board has legal authority to issue the Warrants pursuant to Section 16-13-70 of the Code of Alabama (1975). 15

C. The County Commission is authorized to levy a privilege license tax for public school purposes. Section 40-12-4(a) of the Code of Alabama (1975) states in pertinent part:

In order to provide funds for public school purposes, the governing body of each of the several counties in this state is hereby authorized by ordinance to levy and provide for the assessment and collection of franchise, excise, and privilege license taxes with respect to privileges or receipts from privileges exercised in such county, which shall be in addition to any and all other county taxes heretofore or hereafter authorized by law in such county. ... All the proceeds from any tax levied pursuant to this section less the cost of collection thereof shall be used exclusively for public school purposes, including specifically and without limitation capital improvements and the payment of debt service on obligations issued therefor.

D. It has long been recognized that a tax on the privilege of working and rendering services is a "privilege license tax." Parker v. Jefferson County, 796 So. 2d 1071, 1074 (Ala. 2000); McPheeter v. City of Auburn, 288 Ala. 286, 290, 259 So. 2d 833, 835 (1972); Estes v. City ofGadsden, 266 Ala. 166, 171-72, 94 So. 2d 744, 749-50 (1957). The "Tax", as levied by the Tax Ordinance, is a "privilege license tax with respect to privileges or receipts from privileges exercised" in Montgomery County, as contemplated by Section 40-12-4(a). It is undisputed that all proceeds from the "Tax", less the cost of collection, will be used exclusively for public school purposes. 16 Thus, the County Commission is authorized pursuant to Section 40-12-4(a) to levy the "Tax".

E. Section 40-12-4(b) contains certain limitations upon the tax established in Section 40-12-4(a). Specifically, Section 40-12-4(b) states that a tax levied pursuant to subsection (a) may not be "measured by gross receipts, except a sales or use tax which parallels, except for the rate of tax, that imposed by the state under this title." Further, Section 40-12-4(b) states that no tax shall be levied "upon the privilege of engaging in any business or profession unless such tax is levied uniformly and at the same rate against every person engaged in the pursuit of any business or profession within the county; except, that any tax levied hereunder upon the privilege of engaging in any business or profession may be measured by the number of employees of such business or the number of persons engaged in the pursuit of such profession." The Court finds that the "Tax" does not violate either the "gross receipts" limitation or the "uniformity" limitation.

F. An issue has been raised as to whether the "gross receipts" limitation in Section 40-12-4(b) was meant to apply to a privilege license tax on an individual's compensation. It is evident to the Court that the "gross receipts" limitation was intended to prevent a county from levying a sales or use tax that conflicts with the state's sales or use tax. In any event, the Court 17 finds that this "Tax" is not "measured by gross receipts." The legal definition of the term "gross receipts" is:

The total amount of money or other consideration received by a business taxpayer for goods sold or services performed in a year, before deductions. Black's Law Dictionary p. 710 (7th Ed. 1999).

The "Tax" is not levied on the total amount of money or other consideration received by a business taxpayer; rather, it is levied on the Compensation received by employees and self- employed individuals. Furthermore, to compute Compensation for an Employee (as those terms are defined in the Tax Ordinance), the total or gross amount of all cash or non-cash benefits is reduced by all cash and non- cash benefits earned outside Montgomery County, a $5,000 deduction, and retirement benefits.

To compute Compensation for an Owner (as those terms are defined in the Tax Ordinance), the total or gross amount of all earnings is reduced by operating expenses, all cash and non-cash benefits earned outside Montgomery County, a $5,000 deduction and retirement benefits. Compensation is then used to measure the "Tax" by multiplying this net amount by the tax rate of 1 1/2 %. Clearly, based upon this formulation, which includes numerous deductions, the "Tax" cannot be deemed to be "measured by gross receipts." 

G.  The Court is likewise unconvinced that the "uniformity" requirement was even intended to apply to a "privilege license tax" like the "Tax", which is in the nature of a traditional occupational tax. Rather, given the fact that the Legislature limited this restriction to taxes imposed upon "businesses and professions" this Court believes it is more reasonable to interpret that restriction as only applying to "privilege license taxes" which are in the form of a traditional "license tax."

Nevertheless, even if this uniformity requirement applies to the "Tax", the "Tax" is levied uniformly. Pursuant to the Tax Ordinance, the "Tax" is measured by Compensation. Compensation is measured in the same manner for every person engaged in the pursuit of any business or profession in Montgomery County.

Thereafter, the tax ordinance provides that every individual pay the exact same rate of tax on their Compensation {i.e, 1 1/2 %). It is hard for this Court to imagine a tax which has been levied more uniformly than the one at issue in this action.

Further, the possibility that individual taxpayers may pay different amounts of taxes (i.e., due to varying amounts of Compensation, certain exemptions granted by superior laws, etc.} does not alter the fact that the "Tax" is levied uniformly. There is a fundamental distinction between the "levying" of a tax and the "assessment and collection" of a tax. See, e.g., Opinion of the Justices, 291 Ala. 262, 280 So. 2d 97, 100 (Ala. 1973); Standard Oil Co. of 19 Kentucky v. Limestone County, 220 Ala. 231, 124 So. 5^3 (1929). Section 40-12-4(b) only requires that the "Tax" be "levied uniformly and at the same rate against every person engaged in the pursuit of any business or profession within the county."

The Montgomery County Commission clearly has "levied" a uniform tax. The fact that the County may not collect the exact same amount of tax from every taxpayer is irrelevant for purposes of Section 40-12-4(b).

H.  Because the Court finds that the "Tax"does not violate the limitations found in Section 40-12-4(b), it need not reach the Board's argument that the Legislature abrogated those limitations with the enactment of Section 40-12-31.

I.  The Court is not persuaded by the Defendants' argument that the prohibition against "additional occupational or gross proceeds tax" found in Section 2 of Act No. 89 of the 1975 Legislature prohibits the levying of the Tax. Act No. 89 states that it is "[s]ubject to ... any general law of this state." By the plain language of Act No. 89, it is subject to Section 40-12-4, which is a general law of the state enacted prior to local Act No. 89.

In addition, the plain language of Act No. 89 clearly demonstrates that the prohibition against an occupational tax found in Section 2 of that Act was only meant to apply to the additional power to tax which was granted by the 20 Legislature in Section 1 of that Act {i.e., the prohibition does not apply to the power to tax granted under Section 40-12-4(a)). Further, Section 105 of the Alabama Constitution would prohibit any interpretation of Section 2 of Act No. 89 as revoking any power to tax pursuant to Section 40-12-4(a).

J. Finally, the Court finds that the Tax on nonresident taxpayers who work in Montgomery County does not violate the due process or equal protection provisions of the Fourteenth Amendment to the United States Constitution. The test to determine whether a tax on a nonresident comports with due process is "whether the [County] has given anything for which it can ask return."

Wisconsin v. J.C. Penney, 311 U.S. 435, 444 (1940). The mtervenors have acknowledged that they receive governmental services and benefits while working in Montgomery County. Likewise, the "Tax" does not classify Montgomery County residents and nonresidents in a different manner so as to violate the equal protection clause. The tax rate is the same for residents and nonresidents alike; i.e., 1 Vi % of Compensation earned in Montgomery County.

Powered by Frankly