Montgomery's Occupational Tax
April 1, 2020 | View PDF
This past February 18, under the watchful eye of Montgomery’s Mayor Steven Reed, five of the city’s nine city councilmen, spearheaded by Councilman Glen Pruitt, quickly voted their final approval of a 1% city occupational tax. Three others voted “no.” Councilman Tracy Larkin, who was ill and absent, did not vote. Reed claimed it would bring in $45 to $55 million in extra
revenue every year, beginning in 2021.
This tax is essentially an income tax on everybody who works and earns his living in Montgomery. That’s everybody, whether or not he actually lives in the city.
The really nasty surprise in this tax is that it does not just tax net income. It is a tax on gross receipts. Depending on one’s profit margin, the actual tax take could be anywhere from about two or three percent up to ten or even twenty percent or more of net income. Even a business that suffers a loss would have to pay the tax—a double whammy.
For example, one of Montgomery’s most popular grocery stores, Food Outlet, sells everything at ten percent above cost. Simple math proves that the store must pay tax not just on its ten percent markup, but on its gross sales; that includes the wholesale cost of its stock. The tax bite would come to 11 percent.
The tax is also evil in other ways. It obligates everybody to spend considerable extra time performing additional paperwork to pay the tax. It also sets up a new money-draining bureaucracy to do the city’s paperwork and collect the tax.
And finally, there is nothing mentioned to limit the tax to one percent. At some time in the future, the city could claim it needs more money and double it, or even triple it. Read your history about the federal income tax. In the
beginning, in 1913, it was only one percent. We all know how that worked out.
Montgomery’s people are not happy. The very next day, they flooded WACV talk show hosts Greg Budell and Dan Morris with angry comments. The Alabama State Employees’ Association (ASEA) also voiced disapproval. A Montgomery doctor said he had already relocated his business to Wetumpka.
In the State House, Representative Chris Sells of Greenville introduced a bill to prohibit municipalities from imposing new or increased occupational taxes without legislative approval, retroactive to February 1. It quickly passed both houses. Governor Kay Ivey signed it on March 3.
Mayor Reed said it was inappropriate meddling in city affairs. “That to me is a danger, and a crippling measure of power-hungry, arrogant legislators with the hubris to think that local people don’t know how to solve local problems.”
Really! What about your power-hungry ego and arrogant city council attempting to fleece the people with a new tax they would never approve? Why don’t you let them vote on it? What did you do with the consent of the governed?
Greg Budell announced that if the city should somehow succeed in getting the tax implemented, “it would be the death knell of the city. The people will be fighting it tooth and nail, and I will be leading the charge.”
City occupational taxes are not new. About 20 other Alabama cities and towns have their versions with rates from 0.5% up to 2%. Birmingham is the biggest city with such a tax, and it has suffered greatly over the years. Once known as “The Magic City” and “The Pittsburgh of the South” because of its prosperous steel mills, it has now slid down into the cusp of bankruptcy as business, industry, and the more prosperous people fled to greener, less abusive pastures.
This year is not the first time Montgomery attempted an occupational tax. In fact, it actually passed one back on September 20, 1972.
Back then, Montgomery was ruled by a three-man commission—a mayor, a commissioner of public works, and a commissioner of public affairs. The mayor was Jim Robinson, and the two commissioners were Cliff Evans and Jack Rucker.
Suddenly, on that Tuesday morning, Cliff and Jack voted for a one percent occupational tax against Jim’s “no” vote—two against one—like the proverbial “two wolves and a sheep voting on what’s for dinner.”
The public’s outrage was immediate. Don Markwell’s radio program was inundated with angry people demanding the immediate impeachment of the two commissioners. Activist Gordon Tucker (who later ran for U.S. Senate) created an organization to oppose the tax called “Action America.” Petitions to repeal the tax were handed out everywhere, and just about everyone who found one signed it with gusto.
Cliff Evans and Jack Rucker stood their ground, insisting that the tax was necessary, “We need money for the fire department, the police, and…” They quickly printed up forms and instructions to pay the tax and mailed copies to everyone in the city.
The people were absolutely livid. The whole city was discussing plans for revenge. After six weeks of angry people nearly rioting, the two commissioners decided that repealing the tax was the only way to end their wrath and restore peace.
Today, Montgomery is burdened with five unfaithful councilmen and Mayor Steven Reed, who were just elected last year and are just beginning four-year terms. Steven is the son of one of Montgomery’s most notorious scoundrels, Joe L. Reed, who has held and abused multiple public offices, including city councilman and trustee at Alabama State University. One of his schemes was to double the parking fees for students at the university. The students quickly responded by not buying permits, and instead, parked their cars along streets in residential neighborhoods on the other side of Carter Hill Road. As a councilman, he pushed through an ordinance to prohibit on the street parking over there, even for people who lived there.
There is an old saying, “Like father, like son.” At his first opportunity, Steven Reed has proven it by pulling a dirty trick of his own—the occupational tax.
Sadly, the people will have to wait nearly four years to throw out Reed and the five colluding councilmen.
The good news is that Chris Sells’ new law is standing guard. The new tax is unlikely to become effective any time soon.