Campers v. City of Mobile, No. 2050875 (Ala. Civ. App. 5/25/2007)

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Dickson Campers v. City of Mobile.

No. 2050875.

Court of Civil Appeals of Alabama.

Decided May 25, 2007.

Appeal from Mobile Circuit Court (CV-03-205).

THOMAS, Judge.

Dickson Campers, Inc., sells campers and camper supplies at its place of business located outside the corporate limits of the City of Mobile but within the City's police jurisdiction. On January 17, 2003, Dixon Campers filed a class-action complaint against the City, alleging that it was a representative of a class of businesses operating in the City's police jurisdiction whose members, for the preceding two years, had paid both the City's annual business-license taxes and the City's monthly gross-receipts privilege or license taxes. Dickson Campers sought a judgment declaring the taxes illegal, an injunction against further collection of the taxes, a refund of taxes paid, and other relief, including costs and an attorney fee.

Following discovery and an evidentiary hearing on the issue of class certification, the trial court granted Dickson Campers' motion for class certification with respect to those entities that had paid the annual business-license taxes but denied class certification with respect to the entities that had paid the monthly privilege or license taxes. The trial court held:

"Dickson Campers, as well as most other potential class members, pass[es] [the monthly gross-receipts] tax[es] on to the consumer. The Court finds that Dickson Campers does not have standing to proceed with a certification for a class consisting of business entities which paid these monthly gross receipts taxes. In addition, Dickson Campers' claims are not typical of the class and its interests may conflict with other potential class members who may not have passed on the [monthly gross-receipts] tax[es] on a regular basis."

Dixon Campers moved the court to reconsider its partial denial of class certification; the court never ruled on that motion.¹ The parties filed cross-motions for a summary judgment on the issue whether the City violated § 11-51-91, Ala. Code 1975, when it imposed annual business-license taxes on the businesses operating in the City's police jurisdiction. The trial court denied Dickson Campers' motion, granted the City's motion, and entered a summary judgment for the City without specifying the basis for its decision. Dickson Campers appealed to the Alabama Supreme Court, which transferred the appeal to this court pursuant to § 12-2-7(6), Ala. Code 1975.

Dickson Campers presents two issues on appeal: (1) whether the trial court erred in determining that the City had not violated § 11-51-91 when it imposed annual business-license taxes on businesses in the City's police jurisdiction and (2) whether the trial court erred by refusing to certify a class of businesses on which the City had imposed monthly gross-receipts privilege or license taxes.

Section 11-51-91 gives a municipality the authority to impose license fees or taxes on businesses located outside the corporate limits of the municipality but within the municipality's police jurisdiction. That section, as it read before it was amended in 2006, provided, in pertinent part:

"Any city or town within the State of Alabama may fix and collect licenses for any business, trade or profession done within the police jurisdiction of such city or town but outside the corporate limits thereof; provided, that the amount of such licenses shall not be more than one half the amount charged and collected as a license for like business, trade or profession done within the corporate limits of such city or town, fees and penalties excluded; and provided further, that the total amount of such licenses shall not be in an amount greater than the cost of services provided by the city or town within the police jurisdiction ...."

(Emphasis added.) Section 11-51-91 authorizes a municipality to collect license fees or taxes from businesses located within its police jurisdiction in order to defray the cost of providing municipal services in the police jurisdiction. State Dep't of Revenue v. Reynolds Metals Co., 541 So. 2d 524 (Ala. 1988). "Alabama case law has consistently held that a city may levy a license tax upon a business in its police jurisdiction so long as it is not for the purpose of raising general revenue." Ex parte City of Leeds, 473 So. 2d 1060, 1061 (Ala. 1985), overruled on other grounds by Ex parte City of Robertsdale, 538 So. 2d 31 (Ala. 1988), and State Department of Revenue v. Reynolds Metals Co., supra. The amount of the tax must reflect reasonable compensation to the municipality for the expense of exercising supervision over the police jurisdiction. The tax must do no more than allow the municipality to recoup the cost of extending municipal services to the inhabitants of the police jurisdiction; the tax may not be for the purpose of raising general revenue. Id. See generally Holt Civic Club v. City of Tuscaloosa, 439 U.S. 60, 74 (1978)(holding that it was not unreasonable "for the Alabama Legislature to require police jurisdiction residents to contribute through license fees to the expense of services provided them by the city. The statutory limitation on license fees to half the amount exacted within the city assures that police jurisdiction residents will not be victimized by the city government.").

Pursuant to the authority of § 11-51-91, the City enacted a number of ordinances imposing business-license taxes and license or privilege taxes upon businesses operating in the City's police jurisdiction. Mobile Municipal Code § 34-41 (1997) imposed an annual business-license tax, equal to one-half the annual business-license tax paid by similar businesses located within the corporate limits of the City, on every business in the police jurisdiction. The trial court found that none of the approximately 2000 class members had passed on the annual business-license tax to its customers; all had paid the tax as a cost of doing business. Dixon Campers has paid the annual business-license tax since 2001.

The City also imposed a variety of monthly privilege or license taxes on businesses operating in the police jurisdiction, including a monthly gross-receipts tax on retail sales, Mobile Municipal Code § 34-042 (1997). Dixon Campers paid the monthly gross-receipts tax from 2001 to October 1 2003.² Section 5.1(B) of the ordinance imposing the monthly gross-receipts tax provides that

"on or before the 20th day of each month, every person subject to the taxes levied by this code shall render to the City a sworn tax return, on a form provided by the Revenue Director, and the taxpayer shall compute the taxes due and shall pay to the City the amount of taxes shown to be due."

Section 5.1(E) of the ordinance imposing the monthly gross-receipts tax provides:

"All persons subject to the provisions of this ordinance may add the tax herein levied to the sales price of the goods sold and collect the same from the purchasers, but this section is not mandatory."

Section 6.1 of the ordinance provides civil and criminal penalties for noncompliance. Dixon Campers added the amount of the gross-receipts tax to the cost of the goods it sold and collected from its customers the amount of the tax. The trial court found that most, but not all, of the businesses operating in the police jurisdiction had, like Dixon Campers passed on to their customers this tax, as well as the other monthly taxes imposed by the City.

Other monthly privilege or license taxes imposed on businesses in the police jurisdiction included a tax on leasing tangible property, Mobile Municipal Code § 34-084 (1994); a liquor tax, Mobile Municipal Code § 34-068 (1992); a lodging tax, Mobile Municipal Code § 34-076 (1987); a gasoline tax, Mobile Municipal Code § 57-093 (1987); a cigarette tax, Mobile Municipal Code § 34-090 (1983); and a tax on deliveries, Mobile Municipal Code § 34-068 (1983). Dixon Campers did not pay any of those taxes.

Mobile has a mayor-council form of government. Each year, the mayor develops an annual budget and submits it to the city council for approval. Michael C. Dow, who was the mayor during the time at issue in this case, testified by deposition that during his tenure as mayor the City budgets had never separately reflected the sums expended by the City to provide services in the police jurisdiction. Mayor Dow acknowledged that there were no line items in the budget indicating what the City projected it would spend in providing services in the police jurisdiction. He stated that the cost of providing those services was simply one part of "the totality of the budgeting process." The mayor said that, although the cost of the services the City rendered to the police jurisdiction had never been isolated or specifically allocated during the budgeting process, he was aware that state law required a municipality to see that "service levels" in the police jurisdiction were "up to" the revenue received from the police jurisdiction. He testified, however, that he knew of no state law that either dictated how a municipality was to manage the expense-to-revenue ratio or required a municipality to "keep a record" documenting the relationship between expenses and revenue.

Mayor Dow testified that in 1991 the State of Alabama had conducted an audit of City operations and had determined that the City had spent more that year to provide services in the police jurisdiction than it had received in revenue from the police jurisdiction. The mayor stated that he determined that, if he "kept putting more, percentage-wise" each year into services in the police jurisdiction, he would be "in line with" the formula approved by the State auditor. Mayor Dow said that he had added more each year for police-jurisdiction services, including dedicated police patrols, new fire stations, and improved facilities. He testified that the City had bought land for a service center and had opened a youth center in the police...