City of Bessemer v. McClain, No. 1031917 (AL 1/13/2006)

• Court: Alabama Supreme Court
• Writing for the Court: Per Curiam
• Decision Date: 13 January 2006
• Docket Number: No. 1031917.,1031917.
• Citation: City of Bessemer v. McClain, No. 1031917 (AL 1/13/2006), No. 1031917. (Ala. Jan 13, 2006)
• Parties: City of Bessemer et al. v. E.B. McClain et al.

Page 1

City of Bessemer et al. v. E.B. McClain et al.

No. 1031917.

Supreme Court of Alabama.

Decided January 13, 2006.

Appeal from Jefferson Circuit Court, Bessemer Division (CV-03-1311)

PER CURIAM.

The cities of Bessemer, Homewood, Hoover, Hueytown, Mountain Brook, Trussville, and Vestavia Hills (collectively referred to as "the Cities"), all located in Jefferson County, appeal from the judgment of the Jefferson Circuit Court declaring various taxing ordinances adopted by the Cities invalid and imposing a constructive trust on the taxes collected by the Cities pursuant to those ordinances. We reverse and remand.

Background

On September 23, 2003, E.B. McClain and the Alabama Wholesale Distributors Association filed a complaint in the Bessemer Division of the Jefferson Circuit Court. On March 1, 2004, McClain amended his complaint to add as plaintiffs W.L. Petrey Wholesale Company, City Wholesale Grocery Company, Tobacco Post, L.L.C., and Charles Lee Rackley, Jr. (The plaintiffs are hereinafter referred to collectively as "McClain.") The complaint sought a declaration that the following municipal ordinances were invalid:

1. City of Bessemer Ordinance No. 3227, effective January 1, 2004, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Bessemer and also imposing taxes on cigars, chewing tobacco, and snuff products;

2. City of Birmingham Ordinance No. 03-134, effective September 1, 2003, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Birmingham and also imposing taxes on cigars, chewing tobacco, and snuff products;¹

3. City of Fairfield Ordinance No. 964, effective October 1, 2003, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Fairfield and also imposing taxes on cigars, chewing tobacco, and snuff products;²

4. City of Homewood Ordinance No. 2182, effective January 1, 2004, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Homewood and also imposing taxes on cigars, chewing tobacco, and snuff products;

5. City of Hoover Ordinance No. 03-1978, effective January 1, 2004, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Hoover and also imposing taxes on cigars, chewing tobacco, and snuff products;

6. City of Hueytown Ordinance No. 03-0812-02, effective September 1, 2003, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Hueytown and also imposing taxes on cigars, chewing tobacco, and snuff products;

7. City of Mountain Brook Ordinance No. 1586, effective September 8, 2003, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Mountain Brook and also imposing taxes on cigars, chewing tobacco, and snuff products;

8. City of Trussville Ordinance No. 2003-034-ADM, effective October 1, 2003, imposing a $.10 tax per pack of cigarettes and $.10 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Trussville and also imposing taxes on cigars, chewing tobacco, and snuff products; and

9. City of Vestavia Hills Ordinance No. 1659-C, effective October 1, 2003, imposing a $.08 tax per pack of cigarettes and $.08 tax per package of smoking tobacco to be collected and paid by wholesalers of tobacco products delivering to retailers within the city limits of Vestavia Hills and also imposing taxes on cigars, chewing tobacco, and snuff products, as well as a license tax of $150 plus 3/4 of 1% of the annual gross sales from all tobacco products to be paid by anyone distributing tobacco products within the city limits of Vestavia Hills.³

McClain argued that the above-referenced municipal ordinances were invalid because, he argued, they improperly taxed tobacco products in violation of Act No. 414, Ala. Acts 1947. The title and pertinent sections of Act No. 414 provide:

"AN ACT

"To apply in, but only in, counties which have a population of 400,000 inhabitants, or more, according to the last or any subsequent Federal Census; to fix, levy and to require the payment to such counties of a license tax, in addition to all other taxes or licenses now required by law, of two cents ($0.02) for each package of cigarettes, containing not more than 20 cigarettes and ($0.02) for each additional 20 cigarettes or fractional part thereof in such package sold, stored, or received, for the purpose of distribution to any person, firm, corporation, club, or association within such counties, and to fix and levy a tax on smoking tobacco upon each package containing not more than 1 1/8 ounces .005 (½ cent) each package over 1 1/8 ounces and not exceeding 2 ounces $0.015 (1 ½ cents) over 2 ounces and not exceeding 3 ounces $0.025 (2 ½ cents) over 3 ounces and not exceeding 4 ounces $.035 (3 ½ cents) and $0.01 (1 cent) additional for each ounce or fractional part thereof over 4 ounces; to provide for the payment of said tax by the purchase and sale of stamps to be affixed to each said package of cigarettes or smoking tobacco sold or distributed, in such counties; to provide for the ascertainment, collection, payment and distribution of such license tax and for the enforcement of this act; to prescribe penalties and fix the punishment for the violation of any provisions of this act; and to repeal any existing ordinances or statutes in conflict with the provisions of this act; to prohibit future license or excise taxes by municipalities; and to provide the effective date of this act.

"Be It Enacted by the Legislature of Alabama:

"SECTION 1. This act shall apply in, but only in, counties which have a population of 400,000 inhabitants, or more, according to the last or any subsequent Federal Census; this act shall not have the effect of altering or repealing in any wise any statute now in effect, but shall be in addition to and cumulative of all laws now in effect.

"....

"SECTION 3. In addition to all other taxes now imposed by law, every person who sells, stores, or delivers any cigarettes or smoking tobacco in any county subject to the provisions of this act, shall pay a license tax to the county, subject to the provisions of this act, and a license tax is hereby fixed, created and levied in the amount of two cents ($0.02) on each package of cigarettes containing not more than 20 cigarettes and ($0.02) for each additional 20 cigarettes or fractional part thereof in such package sold, stored, or received for the purpose of distribution or sale to any person, firm, corporation, club, or association within such county; and a license tax is hereby fixed, created and levied on smoking tobacco sold, stored or received for the purpose of distribution or sale to any person, firm, corporation, club or association within such county, upon each package containing not more than 1 1/8 ounces .005 (½ cent), each package over 1 1/8 ounces and not exceeding 2 ounces $.015 (1 ½ cents), over 2 ounces and not exceeding 3 ounces $.025 (2 ½ cents), over 3 ounces and not exceeding 4 ounces $.035 (3 ½ cents) and $0.01 (1 cent) additional for each ounce or fractional part thereof over 4 ounces; provided, however, that when the additional license tax hereby required to be paid shall have been paid by a wholesaler or seller of cigarettes or smoking tobacco, such payment shall be sufficient, the intent being that such license tax hereby required to be paid shall be paid but once on each package of cigarettes or smoking tobacco. The tax levied by this act shall be paid through the use of stamps as herein provided.

"....

"SECTION 9. The license tax required to be paid by this act through the purchase of tobacco stamps from the Probate Judge shall be received by him and shall be distributed by him ....

"....

"SECTION 13. Upon this act becoming effective or operative in any county, every then existing ordinance of every municipality within such county which levies or imposes a license tax on tobacco products payable by purchase and affixation of stamps shall be, ipso facto, repealed to the extent that it levies or imposes a license tax on tobacco products payable by purchase and affixation of stamps, and no municipality within such county shall have power or authority to re-enact or pass any ordinance which levies or imposes [a] license tax on tobacco products payable by purchase and affixation of stamps so long as this act is operative in such county."

(Emphasis added.)

McClain asserted that the Cities adopted the ordinances in response to a provision in Governor Bob Riley's 2003 tax and accountability package that was to be voted on in a statewide referendum on September 9, 2003. If the provision had passed in the referendum, it would have prohibited local governments from taxing tobacco products in the future. Although the Governor's tax referendum subsequently failed, the ordinances adopted by the Cities in anticipation of the passage of the tax package remained in effect.⁴

The Cities filed a motion to dismiss the complaint. They argued that the complaint failed to state a claim upon which relief could be granted because the plaintiffs lacked standing...