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Bill would end cities’ occupational taxes

By MARY SELL, Alabama Daily News

A bill in the Alabama Legislature would phase out occupational taxes in the nearly two dozen cities that have them. Now those municipalities are raising opposition to the bill.

In the State Government Affairs Committee last week, Sen. Andrew Jones, R-Centre, said he had two primary issues with the taxes on people who have jobs in a city: taxing people for working and taxing them without representation.

“These folks are taxed because they work in a location, but they have no say so in the government that imposes the tax on them,” Jones, sponsor of Senate Bill 44, said.

Lorelei Lein, the Alabama League of Municipalities’ general counsel, spoke against the bill at the committee meeting, saying occupational taxes are a local issue.

“That’s where the decisions need to be made,” she said.

She said the tax was an important tool “in a very limited toolbox that municipalities have for revenue for taking care of those quality of life services that all citizens who live in municipalities, who travel into municipalities, who work in municipalities rely on.”

According to city-reported information to the league, 25 cities have occupational taxes, the highest of which are 2%.

Jones’ bill would decrease current occupational taxes by .1% per year until they’re eliminated. 

“So, for the cities, the six of them with a 2% rate, that would be 20 years,” Jones said.

The bill also prevents new occupational taxes or increases on existing taxes.

If cities annex property, any existing occupation tax would not apply to it. 

The bill also says that occupational taxes can’t be levied on people working in police jurisdictions.

In committee, Sen. Linda Madison-Coleman offered an amendment to exclude Class I municipalities, of which Birmingham is the only in the state. 

Birmingham has a 1% occupational tax.

“If there’s an accident, the police officers have to work it,” Coleman-Madison said about cities with a large number of workers. City-funded firefighters and ambulances respond, she said.

“These are tax dollars,” she said.

Sen. Tom Butler, R-Huntsville, moved to carry over the bill and amendment so he could get a better understanding of how both could impact Huntsville. Lein explained that Huntsville, now the largest city in the state, is and always will be a Class III municipality because the designations were statutorily set in the 1970s and don’t change with growth. 

In 2020, lawmakers approved a bill preventing municipalities from enacting occupational taxes without legislative approval. The bill drew heavy criticism at overreach from leaders in Montgomery, who were at the time considering an occupational tax. Mayors from the state’s largest cities wrote letters to lawmakers opposing that legislation.

Bill text:

Alabama cities with occupational taxes:

  • Attalla 2%
  • Auburn 1%
  • Bear Creek 1%
  • Bessemer 1%
  • Birmingham 1%
  • Brilliant 1%
  • Fairfield 1%
  • Gadsden 2%
  • Glencoe 2%
  • Goodwater 0.75%
  • Guin 1%
  • Hacklebug 1%
  • Haleyville 1%
  • Hamilton 1%
  • Leeds 1%
  • Lynn 1%
  • Midfield 1%
  • Mosses 1%
  • Opelika 1.5%
  • Rainbow City 2%
  • Red Bay 0.5%
  • Shorter 1%
  • Southside 2%
  • Sulligent 1%
  • Tuskegee 2%

Source: Alabama League of Municipalities

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