Many Alabamians may soon find some financial relief if State Sen. Andrew Jones' (R-Centre) bill to reduce municipal occupational taxes makes it through the Legislature next session.

Jones told 1819 News on Monday that he had recently emailed Alabama League of Municipalities officials who, in the previous legislative session, successfully opposed legislation phasing out the occupational tax. This email, he said, was intended to try to find common ground on the issue for the upcoming session in 2023.

Jones said he didn't get very far with the League "because they want to keep what they've got."

Occupational taxes are an additional tax in certain municipalities in Alabama that is withheld from an employee's salary, wages and/or commissions by their employer and paid to the municipality if the work is done or the employer is based in that municipality.

Jones proposed legislation during the 2022 session that would've phased out the tax statewide by reducing the tax by a tenth of a percent annually until it was abolished entirely in Alabama. 

With the rise of teleworking and working from home during and after the COVID-19 pandemic, it's likely some Alabamians are paying the tax to certain municipalities if their employer's address is in the municipality, even if they themselves don't physically live or work there.

"I've heard from some constituents that got in touch with me," Jones said. "One in particular that works in Birmingham and prior to the pandemic was getting reimbursed for occupational tax paid for the days that they worked from home. Once the pandemic blew up, and all that happened and everybody is working from home … suddenly, conveniently, Birmingham stops giving rebates for people working from home, so that is a big issue that's going to be part of the legislation when I bring it again."

Twenty-five municipalities in Alabama levy such a tax, some at a rate as high as 2%. Birmingham and Auburn charge a 1% occupational tax on workers employed in the city.

Birmingham's occupational tax revenue is projected to account for about $105.3 million, or just over 20% of total projected revenue for fiscal year 2023 beginning on Oct. 1, according to Birmingham's budget. Auburn's revenue from its tax is projected to generate $14.9 million in fiscal year 2023.

Lorelei Lein, the Alabama League of Municipalities' general counsel, spoke against Jones's bill during the previous session, saying occupational taxes are a local issue and "that's where the decisions need to be made," according to Alabama Daily News.

Lein 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."

Bruce Ely, a partner at Bradley law firm in Birmingham who founded their State and Local Tax (SALT) practice team, said he was "hoping somebody would challenge the tax" but hasn't heard of any individuals engaged in remote work filing a lawsuit against the city of Birmingham.

"I suspect that's largely because the employer must join in the suit since it's the withholding and remitting agent, but most employers simply don't want to get involved with challenging the validity of a tax that's not theirs and is usually relatively small in amount," Ely told 1819 News. "And they often don't want to raise the ire of city government."

Jones said his legislation for 2023 would likely be similar to the bill he proposed during the legislative session in 2022, which was based on six principles:

  • Occupational taxes should not be imposed in the police jurisdiction of a municipality.

  • Employees should not be subject to occupational tax for days spent teleworking outside of an employee's municipal "base" of employment.

  • Work at a satellite office should not be subject to occupational tax if the office is located outside of a municipality that assesses an occupational tax.

  • Temporary workers whose "base" of employment is in a municipality that does not assess occupational tax should not be taxed when working in a taxing municipality for a limited specified number of days per year.

  • Any temporary worker who enters a taxing municipality to respond to or assist with a State of Emergency as declared by the President or Governor should not be subject to occupational tax.

  • An increase to an existing occupational tax rate would have to go through the Legislature.

Alabama passed a law in 2020 restricting cities from implementing new occupational taxes without the Legislature's approval in response to the city of Montgomery's attempt at passing such a tax. Cities that already had the tax on the books were grandfathered in.

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