A bill that has won committee approval in the Alabama Senate would cut and possibly eliminate occupational taxes collected by some cities and stop cities from passing new ones.

The sponsor says occupational taxes are regressive, hurt local economies, and are unfair to people who live outside cities but pay the tax because of where they work.

The Alabama League of Municipalities opposes the bill, saying some cities rely on occupational taxes to provide critical services and that local governments need to make their own decisions without interference from the state. The mayor of one of the affected cities said the bill would take away a vital source of revenue the city has relied on for more than 60 years.

The conflict is not new in the State House. The Republican-controlled Legislature passed a bill three years ago to successfully block an occupational tax approved by the Montgomery City Council. That law requires any city to receive legislative approval for new occupational taxes.

This year’s bill, by Sen. Andrew Jones, a Republican from Cherokee County, goes further to restrict cities on occupational taxes. The bill, SB65, has 13 Republican co-sponsors.

It would cap occupational tax rates at the level in place as of Jan. 1, 2023. For cities that have occupational tax rates more than 1 percent, the bill would incrementally reduce those by 0.2 percent until they reach 1 percent.

The bill would also create new exemptions. Occupational taxes would not apply to those who work in the police jurisdiction of a city, the designated area outside the city limits that still receives some city services, such as police and fire protection. Occupational taxes would not apply to industrial sites of 1,000 acres or more annexed by a city after Jan. 1, 2023. Also, people who work less than 90 days in a city but are based outside of the city and those who work in a city in response to a natural disaster or other emergency, would be exempt.

Jones has proposed similar bills the last couple of years but they have not passed.

Most Alabama cities do not collect occupational taxes. There are 25 cities that do, according to the League of Municipalities. Most of those have a 1 percent rate. Five cities in Etowah County — Attalla, Gadsden, Glencoe, Rainbow City and Southside — have rates of 2 percent and would see those taxes reduced or eliminated if the bill passes.

Jones said he heard complaints about occupational taxes when he campaigned five years ago and was first elected to the Senate. Etowah County is in his northeast Alabama district.

“I was out in 2018, door-knocking, running for office and I heard from a ton of people who were tired of business as usual in Etowah County and this was part of that,” Jones said. “All these people drive in to work in these cities and they have to pay this tax but they have no say-so. In their opinion, many times the decisions of municipal government are contrary to what they would like for them to be. But they’re getting saddled with this 2 percent tax.”

Jones said employees who work in a city that collects occupational taxes pay their share of that city’s tax revenue without occupational taxes.

“They get gas there,” Jones said. “They eat lunch there. They buy groceries a lot of times before they leave to head back home. So they’re already contributing.”

A Senate committee approved Jones’ bill last week on a 6-4 vote. The committee amended the bill to say that if a city’s occupational tax is dedicated to paying off debt the tax rate would not be reduced until the debt is paid. The Alabama League of Municipalities said it will continue to urge lawmakers to oppose the bill.

“While the League is disappointed with the passage of SB65 by the Senate Committee on County and Municipal Government, our advocacy efforts will not stop here,” ALM Executive Director Greg Cochran said. “It is our organization’s mission to protect measures that are in place which allow for local decisions to be made at the local level, one of those being the ability to maintain or implement an occupational tax. SB65, if ultimately passed by the full bodies of the legislature, will cause major consequences for our state’s economic growth and the communities that rely on an occupational license tax which provide its citizens with essential services, such as law enforcement, fire, infrastructure, education, public works and more. For many of those municipalities, it represents over 15% of their budget, with some as much as 30%.

“To reduce, eliminate or alter a city or town’s ability to provide these services to its citizens is an attack on local resources, and the League’s advocacy team will actively work to defeat any legislation considered harmful to municipalities or the function of local government.”

One part of Jones’ bill would apply only to Etowah County and could fully eliminate the occupational taxes in that county. It would require a county-wide referendum in 2028 on whether to the keep occupational taxes. By that point, the taxes would have been lowered to 1 percent if the bill passes.

“We want people to be able to judge for themselves,” Jones said. “Some of these mayors claim that the sky is going to be falling and that city services will be slashed and all that kind of thing. This lets the public be the judge after that initial drawdown to 1 percent, whether they want to go all the way with it or not.”

Rainbow City Mayor Joe Taylor said his city collects about $2.5 million a year from the occupational tax, which he said amounts to about one-fourth of the city’s budget. Taylor said loss of the occupational tax would leave the city no options but to cut back on important services or increase another tax.

“I’m not saying this because I want to alarm anybody,” Taylor said. “It’s just, where do we take it from? Do we keep police and fire and do away with parks and recreation and senior programs?”

Taylor said he knows taxes are not popular but said there is a logical explanation to why occupational taxes emerged in Etowah County. Taylor said the county is relatively small in land area but has historically had job opportunities to draw employees from neighboring counties.

“It was brought about because we had so much industry and being a small land mass county,” Taylor said. “The counties around our fringes are able to come into Etowah County and work and then go back home. Which is good for them. They get to live where they want to and the county that they want to in their hometowns. But we’re the working center for this area.”

Taylor said he paid the occupational tax in Gadsden during a 25-year career as a firefighter and now pays it as the mayor of Rainbow City. He said it would be wrong for the Legislature to take away an important source of revenue for the city.

“I personally see this as overreach,” Taylor said. “I think it’s a violation of the sovereignty of our municipality. We were put in place to governor and duly elected to govern.”

Voting for the bill in committee were Republican Sens. Chris Elliott, Clyde Chambliss, Garlan Gudger, Greg Albritton, Keith Kelley and Jay Hovey. Voting against it were Democratic Sens. Linda Coleman-Madison, Kirk Hatcher, and Merika Coleman, as well as Republican Sen. Josh Carnley.

Besides being a legislator, Jones has a coffee roasting business, Deep South Coffee Factory, and his family operates a cattle farm. Last year he sponsored a proposed constitutional amendment to exempt food from the state sales tax. Jones said he’s working on another bill on that topic this year.

The Legislature is on spring break this week and returns April 4.