A recently distributed legal opinion gave school systems in Morgan County reason to feel they'll benefit from a local law redirecting online sales tax revenue to them from the County Commission, but fear of a legal challenge has two systems holding off on budgeting the money.
If estimates by Decatur City Schools prove accurate, the local law would generate almost $800,000 to be shared by the three school districts in the county — money the Morgan County Commission says it should get.
“Until I have rock solid, absolute proof that we’re going to get the money, I’m not including it in the budget,” said Brian Bishop, chief financial officer of Morgan County Schools, which based on the DCS estimate stands to collect about $394,000.
“We’re waiting to see if we get it,” said Hartselle City Schools CFO Bradley Colburn. Hartselle's take, based on the DCS estimate, would be about $106,000.
There is, however, reason for the school systems to believe they would prevail in the event of a legal challenge.
Sen. Arthur Orr, R-Decatur, requested and received a legal opinion from the Legislative Services Agency’s legal division assuring him that the local law he sponsored at the request of superintendents Michael Douglas of Decatur City, Dee Dee Jones of Hartselle City and Bill Hopkins Jr. of Morgan County, is legal.
Orr said he requested the opinion be put in writing because he, too, was hearing rumors that the Morgan County Commission was “still dissatisfied” with the law and questioning its legality.
Morgan County Commission Chairman Ray Long said commissioners are unified in opposition to the local law because it unfairly singles out one county from a law that covers the entire state.
“All the counties should be treated the same,” he said, adding that the budget he introduced last week “intends to disburse the money to the school systems” as specified in Orr’s bill.
When questioned about whether the county plans to challenge the law in court, Long said: “Nothing has been on the agenda. We have not discussed this a lot, but I don’t think it’s a legal bill. Anything we do wouldn’t be a challenge to the schools because we support the school systems.”
In his four-page opinion to Orr on Aug. 7, John Treadwell, deputy director of the legislative legal division, said local laws can supplement state laws in specific cases, one of them being when the local law meets a “specific local need as determined by the Legislature.”
“There are numerous instances in existing law in which a tax is provided for by general law with a distribution to a local government and that distribution being further provided for by local law to satisfy certain local needs,” Treadwell wrote.
The local law changing how Morgan County distributes online sales tax dollars is related to the statewide 2015 Simplified Sellers Use Tax Remittance Act, which allows online sellers who ship to Alabama to collect sales taxes the state and local governments otherwise would not get. Mandatory provisions of the amended act followed a U.S. Supreme Court ruling last year allowing states to collect taxes on online sales, regardless of where the seller is located.
The state keeps 50% of the online revenue and splits 50% between county and city governments.
The Alabama Department of Revenue distributes to county and municipal governments their share of online revenue based on their populations. The state law does not specify how or whether county and city governments should distribute the money, and Long argued the revenue is new money the commission is entitled to keep just like the state’s 66 other counties.
School leaders, however, said the sales tax money should go where it would if people made their purchases in brick-and-mortar stores and this led superintendents of Morgan County’s public schools to request the legislation Orr sponsored.
One of the functions of the Legislative Service Agency is to provide legal opinions about laws before lawmakers sponsor them.
Orr said he checked with lawyers at the agency before he introduced the bill and they assured him verbally that it was legal.
“I asked them to put the legal opinion they had given to me verbally in writing,” he said.
The state will continue to send online sales tax revenue to the Morgan County Commission, but the local law, beginning Oct. 1, allows the commission to keep only 5% of the money for “administrative purposes.”
Eighty-five percent of the remaining funds will go to the three public school systems, to be distributed proportionally based on enrollment. Another 1.5% of the remaining funds will go to certified 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.
While Hartselle and Morgan County schools are hesitant to include the online sales tax revenue in their budgets, Decatur City Schools Chief Financial Officer Melanie Maples said she has estimated that Decatur will receive about $300,000.
“Since we have not been notified of any legal procedures from the County Commission regarding the sales tax, we are proceeding with our budget based on the change that was made by the Legislature this year,” she said. “We expect to begin receiving a portion of the online sales tax Oct 1.”
If for some reason the money doesn’t come, Maples said “it will definitely have a negative impact” on what the school system has planned for fiscal 2020, which starts Oct. 1.
The school system’s new budgets are due to the state by Sept. 28.
Bishop and Colburn are taking more cautious approaches.
“We’ll do an amendment, probably in December, when we see about how much money is coming,” Colburn said.
“I’m not confident in budgeting something if there is a possibility it may get held up in court,” Bishop said. “We’re going to take the conservative approach.”
Had the local bill been in effect in 2018, Decatur City Schools would have received about $188,000, Morgan County Schools about $246,000 and Hartselle City Schools about $66,000. The commission would have kept about $27,000 as an administrative fee and volunteer fire departments would have shared about $7,500.