State Supreme Court rules for schools in Morgan; money may go to SROs, new Hartselle school

May 16—A split Alabama Supreme Court on Friday upheld the constitutionality of a local law and ruled that the bulk of online sales taxes received by the Morgan County Commission — millions of dollars per year — must be turned over to the three school districts in the county.

Early plans for the extra money include replacing a school in Hartselle and providing more SROs in the county, school leaders said.

The genesis of the legal battle was a local law sponsored by state Sen. Arthur Orr, R-Decatur, and passed by the Legislature in May 2019. The law, specific to Morgan County, requires the commission to redirect all but 5% of the online sales taxes it receives. Shortly before the Oct. 1, 2019, effective date of the law, the Morgan County Commission failed to pass a resolution that would have allowed distribution of the revenue as required by the local law.

Hartselle City Schools filed suit against the County Commission as soon as the law took effect, and Morgan County Schools and Decatur City Schools joined in the lawsuit later in October 2019. The Alabama Education Association assisted the school systems with the litigation.

The Montgomery County Circuit Court ruled in March 2020 that commissioners "must do as the local act requires," but the commission appealed to the state Supreme Court.

Orr on Friday called the verdict "a big day for education in Morgan County if we're going to grow as a county."

"Growth will start with quality education in Morgan County," he said. "This money will be critical in helping the school systems."

The County Commission's legal position focused on Section 105 of the Alabama Constitution, which generally prohibits a local law from contradicting a statewide law. The statewide Simplified Sellers Use Tax (SSUT) law, which became mandatory for most online retailers Jan. 1, 2019, provides for an 8% online sales tax to be collected by the state, with a portion to be allocated "to each county in the state, (to be) deposited into the general fund of the respective county commission."

The local law, however, specifies a formula for redirecting the money remaining after the commission keeps 5%. Volunteer fire departments receive 1.5% of the remaining funds, and the three public school systems in the county share the rest. The bill's formula divides the online sales taxes in roughly the same way brick-and-mortar sales taxes are divided.

In a 6-3 ruling, the Supreme Court held that the local law did not conflict with the statewide SSUT law.

"Instead, it tells Morgan County that it must spend certain moneys already deposited in its general fund on specific expenditures. How to spend the SSUT proceeds was a case or matter left for another day — and the Legislature opted to answer that open-ended question in Morgan County with the Local Act," according to the majority opinion.

The decision does not just affect the distribution of future online sales taxes. More than $3.54 million has accumulated in an escrow account since the filing of the lawsuit, money that now will be distributed according to the formula in the local law.

In just the past 12 months, $2.313 million of SSUT money has been put in escrow. In February, a county record $268,181 of online sales tax was collected.

"This money is going to make a difference in the lives of students in Morgan County," said Hartselle Superintendent Dee Dee Jones. "We'll continue our good working relationship with the County Commission."

She said the school system plans to use the online sales tax funds to help replace and expand Crestline Elementary School.

"Because we're continuing to grow, we need a larger elementary school and plan to have a pre-K center," she said. "We'll get busy on this right away." Jones said she expects a new Crestline school to be open in about 3 1/2 years.

Hartselle City Schools Chief Financial Officer Bradley Colburn estimated his system, based on its enrollment, would receive about $800,000 of the $3.54 million now in escrow.

More SROs

Decatur City Superintendent Michael Douglas said he was "relieved" when he heard the verdict and added it was "premature" to say how his district might spend the online sales tax money.

"I've got a board to help make those decisions," he said. "The money has not been in our budget. We didn't take the courts for granted. But we knew we had a strong case, and we should win. Online tax dollars should be allocated the same as brick-and-mortar sales tax revenues. Moving forward, the money will go into our general fund. We'll try to help teachers and students with it."

Morgan County Schools Superintendent Robert Elliott Jr. said some of the money will be used for more school resource officers for his system's 14 campuses. Presently, there are 11 full-time and part-time SROs at the 18 schools, according to Morgan County sheriff's records.

"Monies received will be used to provide a revenue stream to continue providing a school resource officer to our schools that currently have no funding source," Elliott said. "Monies will also be used to continue paying for nurses at our schools, a service which is only partially funded by the state."

John Stinson, president of the Morgan County Volunteer Firefighters Association, hailed the ruling as a shot in the arm for the cash-strapped departments.

"We're always looking for funds," he said. "We're needing new equipment, new trucks. This benefits everybody in the county. It can even lead to lower insurance rates for residents."

Morgan County Commission Chairman Ray Long said he was disappointed in the court's ruling. He said the commission would have likely used the online sales tax revenue to improve pay for law enforcement and county employees and improve the county's parks.

Cost of lawsuit

He estimated the legal costs of fighting the schools' lawsuit was about $200,000. Long said insurance is picking up a majority of the cost and the remaining money would come out of the commission's general fund.

"At the end of the day, the schools and Morgan County win," Long said. "This is a golden opportunity for the schools. This is free money for them. Our local sales tax was up 32% from this time last year. Nobody loses."

Orr said he had good reason to sponsor the local law that redirected most online sales taxes to the school systems.

"The schools were seeing an increase in online sales taxes going up and brick-and-mortar not going up much," he said. "I believe the money is even more critical to the county schools They don't have the resources that Hartselle and Decatur have. The (brick-and-mortar sales tax) collections would be less and less over time."

AEA District 5 UniServ Director Wendy Lang and Jones predicted that school systems in other counties will now seek similar local laws.

"This case has established a precedent," Lang said. "It has the potential to influence every school board and county commission in the state."

— mike.wetzel@decaturdaily.com or 256-340-2442. Twitter @DD_Wetzel.