Hartselle City Schools on Tuesday filed suit against the Morgan County Commission over its refusal to distribute online sales taxes as required by a local law.
The parties today agreed that during the pendency of the lawsuit, the commission would make monthly transfers of the money in dispute to a Montgomery financial institution, according to a statement by the Alabama Education Association.
In addition to Hartselle City Schools, the lawsuit was brought by the Hartselle City Education Association, the Decatur Education Association and the Morgan County Education Association.
The lawsuit, along with a motion for a temporary restraining order, was filed in Montgomery County Circuit Court. The complaint names each of the Morgan County commissioners as defendants, as well as Vernon Barnett, commissioner of the Alabama Department of Revenue. Barnett was named as a defendant because his department is responsible for collecting online sales taxes and for distributing a portion of those taxes to the Morgan County Commission.
The genesis of the dispute is a local law sponsored by state Sen. Arthur Orr, R-Decatur, and passed by the Legislature in May. The law, specific to Morgan County, requires the commission to redirect all but 5% of the online sales taxes it receives.
The local law took effect Tuesday with the beginning of the 2020 fiscal year and requires the commission to send 85% of the remaining funds to the three public school systems in the county, to be distributed proportionally based on enrollment. Another 1.5% of the funds are required under the local law to go to volunteer fire departments and 13.5% to Morgan County Schools. The bill’s formula mimics how the county divides sales tax collections from brick-and-mortar stores.
"The money that Sen. Orr secured for us in the local legislation was key to making sure our students have the best opportunity for success," Hartselle Superintendent Dee Dee Jones said in a statement Wednesday. "The cuts that would be necessary due to this loss of funds would be devastating, as would us only learning about it now, after our fiscal year has started and after all of our plans for those funds are in place."
School districts in Morgan County passed budgets last month.
The Morgan County Commission on Sept. 24 failed to pass a resolution that would have allowed distribution of the revenue as required by the local law.
“We’ve been told that the local bill is unconstitutional, and we’re going to follow this legal advice,” Commission Chairman Ray Long said last week.
Online sales taxes have generated about $1 million for Morgan County in the last 12 months.
Long and county attorney David Langston referred questions from The Decatur Daily to attorney Bill Justice, who represents the county in the case. Justice was not immediately available for comment.
A statewide law mandates the collection of online sales taxes for items delivered in Alabama. The state keeps 50% of the online revenue and splits 50% between county and city governments.
Read more in Friday's edition of The Decatur Daily.