Jefferson County Occupational Tax Invalid, But No Refunds for Prior Years

Posted on March 23, 2009


In Edwards v. Jefferson County Commission, Circuit Judge David A. Rains struck down Jefferson County, Alabama’s ever controversial occupational tax. Judge Rain’s forty-seven page ruling held that Act 1967-406 (the “1967 Act”) authorizing the County tax was validly repealed by legislation passed by the Alabama Legislature in 1999. As readers may recall from one of my previous blogs, this case was ordered to mediation in February, 2008. All attempts at mediating this dispute failed and the case was submitted by the parties for final adjudication in October, 2008. While Judge Rains held the occupational tax to have been effectively repealed, he ordered that the repeal is to have prospective effect only—something the Plaintiffs’ attorneys and many taxpayers find an unsatisfactory resolution.

The ultimate issue before the trial court was whether Act 1999-669 repealed the 1967 Act authorizing counties with a population of more than 500,000 to enact an occupational license tax. The language of Act 1999-669 clearly states that “Act 406 of the 1967 Regular Session (Acts 1967, p. 1031), relating to a license or privilege tax upon persons engaging in certain businesses in Jefferson County, is repealed” (emphasis added). The Plaintiffs asked the Court to enter summary judgment in their favor based upon the unambiguous language of the Act. The Defendants, however, moved for summary judgment arguing that Act 1999-669 did not repeal the 1967 Act and that Jefferson County has been lawfully collecting the occupational tax during all periods involved in this case.

Act 1999-669 was held to be unconstitutional in Jefferson County Employees Ass’n v. Jefferson County (CV-2000-0297). The basis of the unconstitutionality was that the legislation had not received the proper number of votes for passage. In BJCC v. City of Birmingham, 912 So.2d 204 (2005), the Alabama Supreme Court held that the Alabama courts were not able to decide “political questions,” such as whether the Alabama Legislature has correctly determined that a particular piece of legislation has passed. Accordingly, the Plaintiffs argued in their motion for summary judgment: (1) that the Circuit Court in Jefferson County Employees Ass’n never had jurisdiction to determine Act 1999-669 unconstitutional, (2) that Act 1999-669 is valid and enforceable, and (3) that the occupational tax was validly repealed under the unambiguous language of Act 1999-669.

The Defendants made three primary arguments in support of their motion for summary judgment that were discussed by the Court in detail: (1) the judicial doctrine of res judicata bars the trial court from considering the validity of Act 1999-669 after this Act was declared invalid in Jefferson County Employees Ass’n; (2) allowing Act 1999-669 to repeal the 1967 Act would create an unconstitutional infringement on the freedom of contract with respect to government bond contracts that used the occupational tax revenues as security; and (3) that Act 1999-669 was superseded by Act 2000-215.

Res Judicata

The Defendants argued that the doctrine of res judicata precluded the Circuit Court from making a determination regarding the validity of Act. 1999-66. It was argued that res judicata applied because the Circuit Court had previously made a determination in Jefferson County Employees Ass’n that the Act was unconstitutional. The Defendants argue that this prior determination regarding the validity of Act 1999-669 necessitates the application of res judicata to bar this Court’s consideration of the issue.

The Plaintiffs contended that res judicata could not apply in this case because, among other things, there was not a substantial identity between the parties in the earlier action with the parties in this case. As predicted in one of my earlier blogs, Judge Rains disposed of this issue in favor of the Plaintiffs as this case is not being litigated between the same parties as the Jefferson County Employees Ass’n case.

Contract Clause

The Defendants argued that the Contracts Clause of both the Alabama and United States Constitutions prohibits a state from repealing statutes authorizing the collection of taxes upon which bonded contracts have been formed. In 1988, an inter-governmental agreement was entered into between Jefferson County, the City of Birmingham and the Birmingham-Jefferson Civic Center Authority whereby Jefferson County pledged payments totaling ten million dollars ($10,000,000) to pay debt service of the Birmingham-Jefferson Civic Center. Pursuant to a separate but related pledge agreement, Jefferson County pledged the proceeds of its occupational tax to make payments on its commitment to the Birmingham-Jefferson Civic Center. According to the Defendants, allowing Act 1999-669 to repeal the occupational tax would be unconstitutional because it would impair the existing contract under which occupational taxes were pledged as security for the indebtedness of the Civic Center. Judge Rains summarily disposed of this issue as moot, given that Jefferson County had already made its last payment toward the Civic Center indebtedness.


The Defendants argued that the Legislature’s subsequent attempt to pass another occupational tax in Act 2000-215 revived the 1967 Act under the doctrine of supersedure. Act 2000-215 was enacted into law prior to the effective date of Act 1999-669, which, according to the Defendants, impliedly repealed Act 1999-669. Thus, the Defendants contend under the doctrine of supersedure that Act 2000-215 is the most recent expression of legislative will and that Act 1999-669 never became effective. However, Act 2000-215 was ultimately held to be unconstitutional in Richards v. Izzi, 819 So.2d 25 (2001). The Plaintiff’s argue that Act 2000-215 is a nullity due to its unconstitutionality and, given the unambiguous language of Act 1999-669, the Court cannot look to legislative intent.

The Court found that the Defendants’ legislative intent argument fails because Act 2000-215 did not include any language that would revive the County’s taxing authority under the 1967 Act if Act 2000-215 should be found invalid. The Court also noted that, even though Act 2000-215 initially repealed Act 1999-669, the common law rule that a predecessor statutory provision is revived when the repealing statute is held unconstitutional would apply to revive Act 1999-669 when Act 2000-215 was found unconstitutional.

Holding of Case

The Court held that the Alabama Supreme Court’s decision in BJCC made it clear that the trial court in Jefferson County Employees Ass’n did not have jurisdiction to determine the validity or invalidity of Act 1999-669. Thus, the ruling of the trial court did not invalidate Act 1999-669. Under the authority of BJCC, Judge Rains found the Defendants challenge of the constitutionality of Act 1999-669 to be a nonjusticiable political question and that the Legislature’s determination that the Act passed must stand. Therefore, Act 1999-669 repealed the 1967 Act in accordance with its express and unambiguous language.

Remedy for the Invalid Tax: Retroactive or Prospective Application

The Defendants argued that the BJCC case should be applied prospectively only. The Plaintiffs argued that the BJCC case should apply retroactively and that all occupational taxes collected from the effective date of Act 1999-669 should be refunded to taxpayers. The BJCC case was decided on May 3, 2005. The Court considered whether to order a refund from that date to the present or whether to apply the repeal of the 1967 Act prospectively. The Court did not discuss refunding any of the taxes paid prior to May 3, 2005, nor did it explain it why it deemed that to be inappropriate for consideration. In determining the retroactive or prospective application of BJCC and Act 1999-669, the Court looked at the following factors: (1) the extent of reliance on the invalidated statute, (2) the result sought by the legislature through its enactment of the invalidated statute, (3) the orderly administration of justice, (4) the balance of the equities in the case, and (5) public policy. In reviewing the aforementioned factors, the Court found, respectively, that: (1) that the County was justified in relying on the Circuit Court’s previous repeal of Act 1999-669 in Jefferson County Employees Ass’n; (2) that the BJCC case was intended to define for future generations the limitations on judicial review of legislative actions; (3) that a refund would put a huge administrative burden on the County and would create many unforeseen issues regarding the determination of whether and how much occupational tax was paid by claimants; (4) that, due to the staggering financial consequences to the County if a refund is order, the equities of the case favor prospective application; and (5) that public policy would dictate not crippling the County with refund obligations—noting that the taxpayers in this case are literally trying to shoot themselves in the foot and that the Court would not allow them to do so.

Judge’s Order

Judge Rains ordered that summary judgment be entered in favor of the Plaintiff. The repeal of Act 1999-669 is to be applied prospectively. Pending further orders of the Court, Judge Rains ordered that the collection of occupational tax continue. The tax proceeds are to be placed into an escrow account during the appeal of the case.

My Thoughts

I feel that Judge Rains was right on target in his opinion until he started discussing the prospective or retroactive application of Act 1999-669. Jefferson County Employees Ass’n was clearly worthy of reliance prior to BJCC. In the words of Judge Rains, that case appeared “to be consistent with the prevailing sate of the law at the time.” I think this quote is telling as to why Judge Rains did not bother considering a refund of taxes paid prior to the BJCC decision. I agree completely with Judge Rains’ decision to not consider a refund of taxes collected prior to the decision in BJCC.

In my opinion, Jefferson County was not justified in relying upon the Circuit Court’s ruling in Jefferson County Employees Ass’n once the Alabama Supreme Court decided the BJCC case. At that point, the County was put on notice that chances were strong that the repeal of the occupational tax was valid and that it was wrongfully collecting the occupational tax. Thus, it appears to me that the continued collection of the occupational tax based on Jefferson County Employees Ass’n was an unreasonable and unjustifiable risk after BJCC.

I agree with Judge Rains that the opinion in BJCC was well drafted and was meant to clearly set forth rules regarding the Court’s inability to consider “political questions.” I do not agree, however, that the degree of importance the BJCC case has within Alabama Supreme Court jurisprudence should affect whether the County’s reliance on Jefferson County Employees Ass’n was reasonable after BJCC was decided.

As for the orderly administration of justice, the balancing of the equities and public policy, I think these considerations weighed heavily in favor of the County up until the day BJCC was decided. As stated above, I believe the County took on an unreasonable and unjustified risk in continuing to collect the tax after BJCC—shifting the equities in favor of the taxpayers at this point. The difficulty of administering refunds and the policy considerations associated with financially crippling the County become almost irrelevant due to deliberate conduct of the County (and its governing body). That is, the problem became one of the County’s own making. The County should have ceased collecting the occupational tax and sought alternative means of funds (i.e., other taxes and fees).

What should we expect going forward? The occupational tax will continue to be collected. The case is currently on appeal. The County challenged the escrow arrangement, because it needed immediate access to the money for County operations. Judge Rains has indicated that he may allow the County access of up to four months worth of tax collections. However, he indicated that under no circumstances would the County be granted access to monies collected after May 18, 2009—the end of the regular legislative session. This is clearly meant as a prod to legislators. Multiple legislative proposals for replacing the occupational tax are in fact under consideration in Montgomery. I am not sure at this point what the prospects are for passage of new legislation, but I will keep you posted as this legislation progresses.

Russell M. Cunningham, IV
Cunningham Firm, LLC