Two Recent Business License Tax Cases Show Increasingly Aggressive Municipalities

State & Local Tax Alert: Alabama Edition

Client Alert

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Alabama local governments are combatting revenue losses and concomitant budget issues primarily because of the loss of their sales tax base to online sellers and because of their citizens’ demand for more or increasingly expensive services. Perhaps as a result, we’re seeing increasingly aggressive interpretations of their municipal business license or privilege tax ordinances on both out-of-state vendors and their own local businesses. This alert focuses on two recent examples.

Elbow River Marketing

Elbow River Marketing LP v. City of Birmingham (Circuit Court of Jefferson County, CV-2014-000624 (Mar. 17, 2017), aff’d, Case No. 1160678 (Ala. Dec. 8, 2017), involved Birmingham’s attempt to impose its gross receipts-based business license tax on Elbow River Marketing (ERM), a Canadian-based fuel broker with no facility, employees or agents within the city. During the periods at issue, ERM arranged for the sale of ethanol and naphtha to two Alabama-based customers, via third-party common carriers – rail and trucking companies. Because ERM maintained title to some of the fuel during the act of transportation or acquired title in so-called “flash title” transactions at the point of delivery, the city claimed that the vendor was “doing business” within the city so that sufficient nexus existed. As such, the city alleged these transactions subjected ERM to the city’s business license tax.

Birmingham also contended that ERM was conducting business through agents located within the city. The city pointed to the independently owned and operated transload facility in downtown Birmingham, where some of the fuel in question was offloaded from railroad tank cars to tanker trucks.

Because the tax assessment would have essentially eliminated any profit earned on the sales, ERM challenged the tax. The company first argued that it simply wasn’t engaged in business inside the city of Birmingham. Elbow River relied, in part, on Ala. Code § 11-51-194(b), which shields remote sellers from municipal business license tax in Alabama when their sole connection with a municipality is the delivery of their products into the city by common carrier. ERM also argued that imposing a business license tax in these circumstances would violate U.S. constitutional nexus standards.

After a three-day trial in which Bradley represented the taxpayer in the case, the Circuit Court agreed with ERM and voided the assessment. Deciding the case solely under state law, the court held in a lengthy opinion that ERM was not doing business within the city as required by the state statutes governing municipal business license taxes and that the language in the so-called delivery license statute precluded the imposition of a business license tax on a remote seller shipping goods into the city by common carrier.

The court explained that although ERM “did have title to the products at points in the delivery process,” ERM “did not have possession of or control over the products in the city.” Therefore, ERM wasn’t engaged in business in Birmingham and, thus, the statutory prerequisite to the imposition of a business license tax was absent.

Birmingham appealed the ruling to the Alabama Supreme Court, which, on December 8, 2017, affirmed the trial court’s decision without a separate opinion. In effect, the Court agreed that under Alabama law, a foreign seller cannot be subjected to a city’s business license tax if the seller does nothing more than deliver its product into the city by common carrier, even if title is held by the seller during some part of the transportation process. The Court didn’t address the constitutional arguments.

P.J. Lumber Company

While the ERM case dealt with out-of-state sales into a municipality, some Alabama local governments are aggressively pursuing assessments on out-bound sales as well. A recent and unsettling example is P.J. Lumber Co., Inc. v. City of Prichard (___ So. 3d ___, Case No. 2160627 (Ala. Civ. App. Sept. 22, 2017).

Prichard included gross revenues from international export sales of lumber in calculating the taxpayer’s municipal business license tax liability. Importantly, the taxpayer’s only facility was located in the city. The taxpayer argued that applying the tax to exported goods violated the Import-Export Clause of the U.S. Constitution, which provides: “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States….” The taxpayer – which sells lumber both domestically and internationality – paid the license tax and then petitioned for a refund of the portion of the tax imposed on its sales of lumber exported internationally.

The Alabama Court of Civil Appeals upheld the city’s indirect taxation of those sales, finding that including gross receipts from exported goods in calculating a municipal business license tax doesn’t violate the Import-Export Clause. According to the court, the cases relied on by the taxpayer were inapposite because they were decided before the landmark 1976 U.S. Supreme Court case, Michelin Tire Corp. v. Wages, in which the Court “initiated a different approach to Import-Export Clause cases….”

Relying on several more recent Import-Export Clause cases, the Court of Civil Appeals found that the Prichard business license tax was a nondiscriminatory tax imposed on all businesses located within the city and did not impede the regulation of foreign trade, nor did it affect the harmony between the states. In addition, the tax was imposed on the privilege of doing business in the city and taking advantage of city services: “[t]here is no reason why local taxpayers should subsidize the services used by the [exporter].”

Unfortunately, it doesn’t appear that the circuit court, and therefore the intermediate appellate court, considered whether the Commerce Clause, the Foreign Commerce Clause or several Alabama business license tax cases invoking the Commerce Clause would have prohibited the city from taxing these out-of-state receipts. The taxpayer didn’t petition for certiorari to the Alabama Supreme Court, so those arguments were never addressed.

If you have any questions regarding these two cases, please consult Will Thistle (, Bruce Ely ( or Jimmy Long (