Current News |
Jefferson County Occupational Tax: What You Need To Know
– August 2009
The Jefferson County Occupational Tax has been the center of an ongoing legal battle for many years. This battle culminated when the courts held that all money collected after May 18, 2009 be placed in escrow (and not spent) until the resolution of the case. This loss of revenue placed the county in a fiscal crisis. The County was unable to resolve this issue so on August 10th, Governor Riley called a Special Session of the State Legislature to address the Occupational Tax issue in Jefferson County. A bill was passed and the Governor signed it into law on August 14.
The New Occupational Tax
Effective August 14, 2009, Jefferson County, Alabama is authorized to reenact an occupational tax on all individuals taking part in a business activity within the county. Business activity is defined in the statute as any "business, vocation, occupation, calling, or profession." The initial tax rate will be imposed at 0.50% of gross salaries, wages, commissions or other monetary payment and the existing exemptions for various licensed professionals will remain in effect until January 1, 2010. This is a continuation of the "old" occupational tax that the County has been assessing.
Beginning January 1, 2010, the tax rate will decrease to 0.45% and will be assessed on compensation excluding benefits, or net income before taxes, whichever is less. Compensation, benefits, and net income before taxes were not defined in the statute. Therefore, we will have to await regulations from Jefferson County to learn the true scope of the tax. The only exemptions from the tax after January 1, 2010 are for entities subject to the financial institution and public utilities excise taxes.
Old Tax vs. New Tax
There are three primary differences in the old occupational tax and the new occupational tax: the rate of the tax, the tax base, and who is exempt from the tax. The tax rate for the old occupational tax was 0.50% and it was assessed on gross income. The tax rate for the new occupational tax will be 0.45% and will be assessed on the lesser of compensation excluding benefits, or net income before taxes. The old occupational tax had exemptions for certain businesses, vocations and occupations that are required to purchase a state license or pay a privilege tax. Beginning January 1, 2010, these exemptions will no longer be available. Only entities subject to the financial institution and public utilities excise taxes will be exempt from the new occupational tax.
Implementing the New Occupational Tax
For the remainder of 2009, companies should continue to remit the occupational tax as they have in the past. By the time the new rate goes into effect on January 1, 2010, Jefferson County should have released information on how to calculate the new tax. Businesses and individuals that were exempt from the old occupational tax will also still need to pay the business licenses and/or privilege taxes that they have paid in the past.
What’s in store for the future?
The new occupational tax legislation calls for a public referendum in June of 2012. If the tax is voted down it will be phased out over a five year period commencing October 1, 2012. The tax rate will be reduced by 20% on October 1st and for the four years following. After the five year phase out, the tax will cease to exist. And what about the occupational taxes that are being held in escrow? On August 25th, the Alabama Supreme Court upheld the lower court’s holding that the tax was unconstitutional. There will likely be an appeal to this decision which will delay any refunds.
If you have questions or would like additional information on how this legislation may impact your business or your employees, please contact your Warren Averett advisor.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii), marketing or recommending to another party any transaction or matter addressed herein.
