McPheeter v. City of Auburn

• Decision Date: 23 March 1972
• Docket Number: 5 Div. 917
• Citation: 259 So.2d 833,288 Ala. 286
• Parties: Edwin K. McPHEETER et al. v. The CITY OF AUBURN, Alabama, a Municipal Corp., et al.
• Court: Alabama Supreme Court

Page 833

259 So.2d 833

288 Ala. 286

Edwin K. McPHEETER et al. v. The CITY OF AUBURN, Alabama, a Municipal Corp., et al.

5 Div. 917.

Supreme Court of Alabama.

March 23, 1972.

Frank J. Mizell, Jr., Montgomery, for appellants.

Dumas, O'Neal & Hayes, Birmingham, Brown & McMillan, Auburn, for appellees.

J. M. Breckenridge, Birmingham, for City of Birmingham, amicus curiae.

Drayton N. Hamilton, Montgomery, for Alabama League of Municipalities, amicus curiae.

McCALL, Justice.

The appellants instituted a class action in the Lee County Circuit Court seeking a declaratory judgment to have declared illegal and void Ordinance No. 416, enacted by the City Council of the City of Auburn, on January 20, 1970, and an injunction to prohibit its enforcement.

The trial court denied the relief prayed for by the complainants, and decreed that, under the contentions raised, Ordinance No. 416 offends neither the United States nor the Alabama Constitution, nor the laws of the State which were put in issue. The court held that the complainants, and those of the separate classes each represents, whether residents or nonresidents of the City of Auburn, who work or perform services within its limits, are legally liable for the privilege license fee or occupational tax based on the remuneration for their work or services, notwithstanding that their salary or wage is paid by Auburn University, the State of Alabama, or the United States; that no legal undertaking is asserted by the city to require any governmental unit to withhold and remit taxes due from its employees to the city; that the ordinance validly requires an annual license for the privilege or right to engage in or follow a trade, business, vocation, occupation, or profession within the corporate limits of the City of Auburn, the fee for which is to be measured by one per centum (1%) of the amount of the recipient's gross salary or wages in excess of $2,080 per year; that the ordinance is not invalid because it excludes from its operation domestic servants employed in private homes, clergymen of a recognized religious sect in the performance of their calling, or businesses, professions or occupations for which license fees are already required under any other ordinance; and that the ordinance does not tax property or income of the taxpayer. From the adverse final decree of the circuit court, the appellants have appealed to this court.

The plenary authority to municipalities to levy privilege and license taxes is given by the Legislature and is found in Tit. 37 § 735, Code of Alabama, 1940. That section provides:

'All municipalities shall have the power to license any exhibition, trade, business, vocation, occupation, or profession not prohibited by the Constitution or laws of the state, which may be engaged in or carried on in the city or town * * *. The power to license conferred by this article may be used in the exercise of the police power as well as for the purpose of raising revenue * * *.'

In Town of Hackleburg v. Northwest Alabama Gas District, 277 Ala. 355, 357, 170 So.2d 792, 793, this court observed:

'Municipalities have no inherent power of taxation, but the State, having the power to tax may confer and delegate this power on and to a municipality. Stein v. Mayor, etc., of Mobile, 24 Ala. 591; Estes v. City of Gadsden, 266 Ala. 166, 94 So.2d 744. If the taxing power delegated is not limited, it includes all the taxing power possessed by the State. See McQuillin, Municipal Corporations, 3rd Ed., Vol. 16, Sec. 44.07.'

There is nothing in the statute, Tit. 37, § 735, Code of Alabama, 1940, that exempts employees in government from the effects of the tax ordinance. Therefore, if there is no principle of law clothing government employees with immunity, because they are such, we can conceive of no reasonable cause why they should be excluded from a tax that others bear.

Auburn University is a 'body corporate,' a public institution of higher learning which is an instrumentality of the State, enjoying among other public benefits tax support and the right to condemn property. Tit. 19, § 1, Tit. 52, § 474(1), Code of Alabama, 1940. Its Board of Trustees is created under the constitution. Amendment 161, Constitution of Alabama of 1901. The University employs and pays out of its funds the salaries of those in one class of the appellants herein. The State of Alabama and the United States employ and pay the salaries of other class appellants herein. All appellants contend that the municipality's imposition of this tax is a burden on or an interference with government because the individuals taxed are performing essential functions for the operation of government.

The contention of the appellants concerning tax immunity is disposed of by the Supreme Court of Colorado in Hamilton v. City and County of Denver, Colo., 490 P.2d 1289, 1293, where the court said:

'* * * (N)or can we rationalize logically in what way the imposition of the tax upon state employees interferes with or adds additional qualifications for state employment. Payment of the tax is not a prerequisite to being appointed or elected, nor does continuation to the state position depend on payment of the tax. Whether the individual employee is in default has not been shown by the record either to be known to or any concern of the state.'

The ordinance imposes the tax or license fee in return for the privilege of engaging in a trade, occupation or profession in the City of Auburn and for being afforded the benefit of the facilities of the city while in the pursuit of that business. See McConnell v. City of Columbus, 172 Ohio St. 95, 173 N.E.2d 760, wherein the court also held:

'At one time, it was considered that any tax by one government on income received from another government would represent such an undue interference with the governmental activities of the latter government as to constitute a tax upon that latter government or its activities.

'However, since the decision in Graves v. People of State of New York ex rel. O'Keefe, 1939, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466, it no longer can be seriously argued that a nondiscriminatory tax on income earned for services rendered to or work done for a government represents a legally recognizable interference with the activities of that government so as to constitute a tax upon that government. In that case, which was decided before enactment of any federal statute providing for taxation by a state or its subdivisions of income received from the federal government, several prior decisions were overruled and it was held that such income was subject to taxation. * * *'

Imposing payment of the tax or license fee on the individual so engaged and employed, places no tax burden on Auburn University, the State, or the federal government as such. The tax is not levied on the employer-employee relationship, but on the taxable event of rendering services or following a trade, business, or profession. The ordinance places the tax on an employee's privilege of working in the city limits of Auburn regardless of the person's employer or the place of residence of the employee.

In Hamilton v. City and County of Denver, supra, the court held that state employees are subject to City of Denver's Employee's Occupational Privilege Tax. This case appears to be similar in all material aspects with the issue presented by Ordinance No. 416. The basis of the decision was that no burden was placed on the...