Executive Director's Report - November/December 1999

1999 Special Session Yields Agreement on Franchise Tax
Special sessions of the Alabama Legislature are often trying times for county government. The pace of the sessions oftentimes presents challenges for those who are working to represent the best interests of Alabama county government.

However, the second special session of 1999 ended on November 29 with the passage of two ACCA-supported bills and a number of other new laws important to counties.

Gov. Don Siegelman called the special session to consider a four-bill package aimed at filling the $120 million hole left by a U.S. Supreme Court decision striking down a major portion of Alabama's franchise tax. Before adjourning on November 29 the Alabama Legislature approved four new statutes that removed the unconstitutional portions of the franchise tax while preserving the tax at a new, lower rate. The tax on banks and insurance companies was also increased and foreign corporations -- those not organized in Alabama -- were required to pay the state's shares tax.

In order to reach this agreement with the business community, the Legislature also passed a constitutional amendment setting a March 21, 1999 election on a 1.5 percent increase in the state's corporate income tax. Should the voters ratify this proposal, the state's shares tax will be abolished. The individual bills are explained below.

HB 1 (Act 99-665)
This legislation reinstated the state's franchise tax at a common rate for both foreign and domestic corporations, increased the state's financial institution and insurance taxes and extended the state's shares taxes to both foreign and domestic taxes. The resulting revenue is expected to be enough to replace the loss revenue from the demise of the franchise tax on foreign corporations.

The most important aspect of the legislation for counties is a provision requiring the state to continue to pay -- from the proceeds of the franchise tax revenue -- the amount of money each county received in BOTH franchise tax and shares tax revenue during the 1998-99 fiscal year. Without this provision, counties would have almost certainly realized a decrease in funding because of the restructuring of the new tax.

Also included in the Act is a provision that this county revenue be increased each year by a very modest growth factor of three-quarters of one percent, beginning in the year 2000. Although the Association staff initially sought a larger growth guarantee, this increase was a reasonable approach given the volatile nature of the special session.

This change means counties no longer receive any revenue from the state's shares tax. However, beginning in 2000 counties will receive a state allocation equal to their shares revenue, plus the growth factor, from the proceeds of the franchise tax. For this reason, it will be important to defend the state's franchise tax even more vigorously in the future.

HB 2 (Act 99-650)
This Act takes effect only if the referendum proposing the increase in corporate income tax is approved on March 21. If voters approve the increase, this measure will shift a portion of a number of state taxes -- leasing, tobacco, sales and use -- from the state education trust fund to the state general fund. This change will not impact county government.

HB 3 (Act 99-600)
This Act sets a statewide election on March 21 for the purpose of increasing the state's corporate income tax rate from 5 percent to 6.5 percent. The increase in revenue, earmarked for the special education trust fund, will be off-set in large part by the shift of other taxes to the state general fund provided in Act 99-650 above.

HB 4 (Act 99-664)
This Act is the enabling legislation for Act 99-600 and has no direct impact on county government, with two notable exceptions. It only becomes effective if the referendum on March 21 is approved.

First, the Act abolishes the state corporate shares tax and replaces that revenue with the proceeds from the increase in corporate income tax. Because the shares tax will be abolished, it was necessary to shift the county-portion of the shares tax revenue to the new franchise tax, as discussed above.

Second, this Act includes new language in the list of exemptions from corporate income tax to make it clear that county governments and their instrumentalities are exempt from the corporate income tax. Although the Association staff is unaware of any attempts to require counties or related organizations to pay corporate income tax, this new language provides insurance from any future attempts.

ACCA Legislation

HB 73 (Act 99-663)
This new statute broadens the definition of electronic vote counting equipment to include the mark-sense voting equipment already in use by a number of counties. This change will ensure that those counties using this system -- and other counties that choose to utilize the system in future -- will be within the law. The Act also establishes a procedure for testing any modifications or changes to the equipment.

Special appreciation is expressed to the sponsor in the House -- Rep. Marcel Black -- and to the Senate sponsor -- Sen. Pat Lindsey.

SB 10(Act 99-703)
As signed into law by Gov. Don Siegelman, this Act amends the 1852 statute that had prohibited county commissioners from being appointed to other public boards. Largely ignored, this old statute had become a topic of conversation around the state.

The amended statute ratifies any actions taken by commissioners who were serving on other boards in the past. The Act also prohibits commissioners from accepting expense reimbursement from BOTH the public board and the county commission and also says no more than one member of the commission can be appointed to any particular board. The Association expresses its thanks to the Senate sponsor -- Sen. Tom Butler -- and to the House sponsor -- Rep. Bill Dukes.

The 2000 regular session of the Alabama Legislature begins on February 1. This session will certainly present a number of new opportunities and challenges. Elsewhere in this issue you will find a copy of the Association's Legislative Program for the new year. The program includes the priorities for 2000. The passage of this legislation will require the support of ALL county officials.