On Tuesday, the Alabama Senate County and Municipal Government Committee advanced legislation that would place further limits on cities that currently have occupational taxes. The committee gave a favorable report to a substitute version of the legislation – Senate Bill 65 (SG65). The Alabama League of Municipalities are staunchly opposed to this legislation. They released a statement following its receiving committee approval.
“While the League is disappointed with today’s passage of SB65 by the Senate Committee on County and Municipal Government, our advocacy efforts will not stop here,” the League said in a statement on social media. “It is our organization’s mission to protect measures that are in place which allow for local decisions to be made at the local level, one of those being the ability to maintain or implement an occupational tax.”
“We appreciate the mayors and first responders that attended and shared examples of the negative impacts this legislation could cause, including: laying off first responders and other essential personnel; making cuts to infrastructure, education, and public works; and restricting economic development growth,” the League added.
Senate Bill 65 (SB65) is sponsored by State Sen. Andrew Jones. Jones represents Etowah County, where several municipalities including Gadsden, have occupation taxes.
An occupation tax is a tax on payrolls that goes to municipalities. Workers already owe income taxes and FICA/social security taxes to the federal government, plus the state income tax. They also pay a percentage (usually one or two percent) to the town they work in. The tax burden of working in a town with an occupation tax is onerous. An occupation tax is not a true income tax because they do not tax rental income, investment income, business profits, farm income, etc., but anyone who is a wage earner must pay the tax to hold a job in that city or town. The tax is despised by many workers Jones represents, particularly those who work in but do not live in a town with an occupation tax as they pay the tax, but receive little, if any, of the tax benefits.
Workers who live in a town with an occupation tax but work in another town do not pay the tax in the town where they live, even if the town where they work does not have an occupation tax – unlike a true income tax which is already forbidden in towns and cities under Alabama law.
Jones has led efforts to repeal the remaining occupation taxes across the state. The Legislature blocked Jefferson County from imposing an occupation tax ten years ago, with the state’s largest county filing for bankruptcy protection. Cities like Montgomery that don’t have an occupation tax are already blocked from imposing one without coming to the Legislature. Jones first tried to abolish the remaining occupation taxes in the state. Failing that, he has tried to phase them out or prevent cities with occupation taxes from extending that occupation tax outside the city limits to the police jurisdiction or the town annexing new property to capture more workers into Tuesday’s tax scheme.
Jones said, “There is a lot of things we should be able to agree on. It is unfair that workers who have lost their jobs when a plant closes, like Goodyear, have to pay a 2% tax on their unemployment severance pay.”
“We should be able to agree that is unfair that a business like a tow truck operator has to keep records on how much time their operators spend working in each town in order to calculate the occupation taxes,” Jones said.
Opponents bitterly opposed this bill in the public hearing.
Opelika Mayor Gary Fuller said, “The citizens have the option of addressing that every four years.”
“We think this is a local issue,” Mayor Fuller said.
Guin Mayor Phil Segraves said that Guin has had an occupation tax since 1984.
“We need to retain this tax,” Segraves said. “It has been a valuable tool for economic development.”
Rainbow City Mayor Joe Taylor said, “I stand in opposition to HB65, but not to my Senator.”
Taylor explained that Rainbow City wants to annex 1,100 acres of farmland on I-59 for industrial development, and they need the occupation tax to develop that site.
“This is about economic development,” Taylor said. “We have a memorandum of understanding with our county on a water and sewer project. We have dedicated $2 million of our ARPA money to this project. The county has dedicated $20 million.”
The ban on allowing cities with an occupation tax to extend that to newly annexed land would prevent Rainbow City from extending the occupation tax to new jobs created on the Etowah County mega site they are trying to annex.
Jones agreed to amend his bill so that cities annexing a thousand acres or more parcels would be an exemption from the legislation.
Gadsden Fire Chief Will Reed said that ending the occupation tax would mean he would have to cut his paramedics.
“This is a horrible thing for our fire department and for the people of our community,” Reed said.
State Sen. Linda Coleman Madison said, “As I listen to the people that came before us, these taxes are tied to schools, police and fire services, economic development, recreational opportunities.”
Jones said, “Median household income in Alabama is about $53000, so 2% is about a thousand dollars, which is a considerable amount.”
“There are only about 24 cities that have this,” Jones said.
Sen. Kirk Hatcher said that for the state to prevent cities from imposing occupation taxes is excessive.
“This is the definition of big government,” Hatcher said.
HB65 was amended and substituted by the committee.
The committee voted to give the newest version of HB65 a favorable report in a 5 to 4 vote.
HB65 could be voted on by the full Senate as early as Wednesday. If passed, it would still have to go to the Alabama House of Representatives for their consideration.
The Senate will go into session at 3:00 p.m. for the third legislative day of the 2023 Alabama Regular Legislative Session.
As of Monday, 243 bills have been filed in this session.
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