Jefferson County Occupational Tax Case Goes to Mediation

Posted on February 26, 2008

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The ongoing lawsuit over the validity of Jefferson County’s
occupational license tax is headed to mediation.  Circuit Judge David
Rains ordered the mediation and has appointed John Carroll, dean of the
Cumberland School of Law, as the mediator.  The attorney for the
plaintiffs in this case, Sam Hill, told the Birmingham News earlier
this month that “[w]e’ve said all along that this need to go to
mediation.” (See  "Jefferson County Occupational Tax Case Heads to Mediation"). 
To my knowledge, Jefferson County’s attorneys have not spoken publicly
about the mediation.  I have to believe that Jefferson County’s
attorneys have positive feelings as well about mediation. 

Jefferson County’s legal arguments in this case have some significant weaknesses.  These weaknesses are discussed at length in my previous blog on the occupational tax dispute.  The County’s legal team has publicly brushed aside any assertion that the tax is not valid and has dismissed taxpayer refund requests as being a waste of time.  However, given that their case is not “iron clad”—and the difficulty of predicting what may happen in the courtroom—mediation would seem to be a welcome opportunity to dispose of this matter. 

The economic impact of losing this case brings a whole new perspective on the settlement discussions. According to articles in the Birmingham News (see "Occupational Tax Hazard"), an order to refund occupational taxes could cost Jefferson County hundreds of millions of dollars.  Jefferson County receives approximately $66 million a year from the occupational license tax.  The same 1999 law that allegedly repealed the occupational tax also purported to repeal the County’s business license.  Business license revenues bring the County about $20 million a year.  With recent annual budgets in the neighborhood of $650 million, one can easily see how an $86 million hole is significant.  It also doesn’t take a mathematician to see that a loss in this case could result in refund requests that would financially cripple Jefferson County. 

The local media and state and local politicians seem to be looking to the Alabama legislature to make the occupational tax problem go away (see "Mediation Won’t Be End of Story for Job Tax").  This is a mistake.  Two bills were before the Alabama legislature during the regular session last year to retroactively re-enact the Jefferson County business license and occupational license taxes—a “repeal of the repeal.”  These bills died among the chaos that was the 2007 regular session. (As you recall, this chaos culminated with Senator Charles Bishop (R) punching Senator Lowell Barron (D) on the Senate floor.  Click here for the video).

I doubt retroactive legislation will be passed by the Alabama Legislature any time soon.  Even if it were, a retroactive fix may lead to further court challenges and will likely fail in averting a financial disaster for the County.  The Alabama Legislature loves to retroactively “clarify” statutes that were drafted incorrectly.  However, it can’t really “clarify” a legislative repeal.  The language of the last year’s occupational tax bills seems to acknowledge this reality.  The proposed bills clearly purport to retroactively validate the occupational tax valid for the 2000-2007 tax years.  That is, the Legislature wants to waive a magic wand and make it as though the repeal never existed and the County was validly collecting the tax for the last several years.  This smacks of retroactive taxation to me, which is of dubious constitutionality.  Such legislation if passed would likely lead to even more legal battles and that would likely be unsuccessful.    

Given the legislature’s track record with the occupational tax, the citizens of Jefferson County need to be looking to (gulp) the attorneys in this case to work out a solution to the occupational tax problem.  Hopefully, the attorneys and their respective clients can craft a solution that compensates taxpayers for some of the allegedly invalid taxes paid and limits the exposure of the County to a fraction of the hundreds of millions of dollars it could lose.  With respect to future tax collections, we will unfortunately have to depend on the Alabama Legislature to put a new Jefferson County business license and occupational license tax statute in place in order to fund the County’s operations.   

Russell M. Cunningham, IV
Cunningham Firm, LLC

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