Pleading-Stage Constitutional Scrutiny of Municipal Tax Classifications: Equal Protection, Vagueness, and Dormant Commerce Clause Claims May Proceed; Zoning-Notice Attack Fails

Introduction

In Campus Crest at Tuscaloosa LLC; BVSHSSF Tuscaloosa LLC; et al. v. City of Tuscaloosa (Ala. Oct. 3, 2025), the Supreme Court of Alabama addressed a high-stakes challenge by fourteen taxpayers—each an out-of-state owner, operator, or lessee of multifamily housing in Tuscaloosa—to a municipal ordinance that triples the business-license fee for “student-oriented housing developments” (SOHDs) with more than 200 bedrooms. Ordinance No. 9112 amends Tuscaloosa Code § 7-61 by increasing the fee from 1% to 3% of rents received for such developments, justified by the City on the grounds that SOHDs impose heightened burdens on infrastructure and public services.

The taxpayers sued for declaratory and refund relief, asserting violations of equal protection, due process (vagueness), and the dormant Commerce Clause, and contending the ordinance functioned as a zoning measure enacted without the statutory notice required by Ala. Code § 11-52-77. The trial court dismissed the complaint under Rule 12(b)(6), Ala. R. Civ. P. The Alabama Supreme Court affirmed in part and reversed in part: it allowed the constitutional claims to proceed while holding that the ordinance is not a zoning ordinance subject to § 11-52-77.

Justice Sellers authored the opinion. Justices Bryan, Mendheim, McCool, and Lewis concurred. Justice Cook, joined by Justice Wise, concurred in part and dissented in part, urging dismissal of the vagueness claim. Justice Shaw, joined by Chief Justice Stewart, would have affirmed the dismissal in full. The decision refines Alabama pleading standards for constitutional attacks on municipal taxation and clarifies the boundary between tax and zoning enactments.

Summary of the Opinion

• Equal Protection: The Court held that, accepting the complaint’s allegations as true and drawing all inferences in plaintiffs’ favor, the taxpayers plausibly alleged that the 3% classification for SOHDs with more than 200 bedrooms is arbitrary and not rationally related to legitimate municipal purposes. The Court emphasized that, at the Rule 12(b)(6) stage, challengers need not plead and negate every conceivable rational basis.
• Due Process (Vagueness): The Court held that taxpayers sufficiently alleged unconstitutional vagueness. Because the ordinance incorporates an SOHD definition with non-exhaustive criteria and grants substantial discretion to the zoning officer, the complaint plausibly alleges lack of fair notice and risk of arbitrary enforcement. The taxpayers have standing as designated SOHDs paying the 3% fee, and they were not required to exhaust an optional appeal to the Zoning Board of Adjustment for a facial vagueness challenge.
• Dormant Commerce Clause: The Court held that allegations that the tripled fee effectively burdens only out-of-state owners/operators—thereby favoring in-state economic interests—state a classic discrimination claim sufficient to survive dismissal, potentially triggering the per se rule against protectionist state and local measures.
• Zoning-Notice Claim: The Court affirmed dismissal of the claim that the ordinance is a zoning measure enacted without notice and hearing under § 11-52-77. Even though the ordinance borrows a zoning definition and deputizes the zoning officer for determinations, the measure imposes a business-license tax; it does not regulate land use. Thus, zoning notice procedures do not apply.

Analysis

Precedents Cited and Their Influence

• Rule 12(b)(6) Standard: The Court applied the classic Alabama pleading standard set out in Nance v. Matthews, 622 So. 2d 297, 299 (Ala. 1993), emphasizing that dismissal is proper only if it appears beyond doubt that the plaintiff can prove no set of facts entitling relief. The opinion also referenced Fraternal Order of Police, Strawberry Lodge No. 40 v. Entrekin, 294 Ala. 201, 314 So. 2d 663 (1975), reaffirming notice-pleading principles.
• Equal Protection, Rational Basis:
  • Gideon v. Alabama State Ethics Comm’n, 379 So. 2d 570 (Ala. 1980): Recites the two-part rational-basis inquiry.
  • Northington v. Alabama Dep’t of Conservation & Natural Resources, 33 So. 3d 560 (Ala. 2009): The challenger bears the burden to negate every conceivable rational basis—but this is a merits burden.
  • Wroblewski v. City of Washburn, 965 F.2d 452 (7th Cir. 1992): Procedural versus substantive burdens—plaintiffs are not required at the pleading stage to negate every rational basis. The Alabama Supreme Court adopts this approach in spirit.
  • Thorn v. Jefferson Cnty., 375 So. 2d 780 (Ala. 1979), and Metropolitan Life Ins. Co. v. Forrester, 437 So. 2d 535 (Ala. Civ. App. 1983): Reinforce that constitutionality presumptions do not foreclose factual development at early stages.
• Vagueness and Due Process:
  • Grayned v. City of Rockford, 408 U.S. 104 (1972), and Hill v. Colorado, 530 U.S. 703 (2000): Define fair notice and anti-arbitrary enforcement as twin pillars of vagueness doctrine.
  • Scott & Scott, Inc. v. City of Mountain Brook, 844 So. 2d 577 (Ala. 2002): Cited for the principle that enactments must afford a person of ordinary intelligence a reasonable opportunity to understand regulated conduct or status.
  • Standing cases: Fletcher v. Tuscaloosa Fed. Sav. & Loan Ass’n, 294 Ala. 173, 314 So. 2d 51 (1975); Kid’s Stuff Learning Ctr., Inc. v. State Dep’t of Human Res., 660 So. 2d 613 (Ala. Civ. App. 1995): Challengers must be affected; the taxpayers’ payment of the 3% tax suffices.
  • Ex parte Haralson, 853 So. 2d 928 (Ala. 2003): Doubts on sufficiency are construed in plaintiff’s favor at the pleading stage.
• Exhaustion/Futility:
  • City of Bessemer v. McClain, 957 So. 2d 1061 (Ala. 2006): No need to exhaust administrative remedies when the agency lacks authority to grant relief on pure questions of law; futility applies. The ordinance itself used permissive “may appeal” language to the Zoning Board.
• Dormant Commerce Clause:
  • Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (1986): Two-tier framework—laws that discriminate against interstate commerce are generally invalid per se; evenhanded laws are tested under Pike v. Bruce Church, 397 U.S. 137 (1970).
  • Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328 (2008); National Pork Producers Council v. Ross, 598 U.S. 356 (2023); South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018); New Energy Co. of Ind. v. Limbach, 486 U.S. 269 (1988): Reinforce constraints on state/local protectionism.
  • Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997): Real property taxes may burden interstate commerce.
  • Family Winemakers of Cal. v. Jenkins, 592 F.3d 1 (1st Cir. 2010): Discriminatory effect analysis—disproportionate burdens on out-of-state actors and advantages to in-state ones.
• Zoning versus Tax:
  • Kennon & Assocs., Inc. v. Gentry, 492 So. 2d 312 (Ala. 1986): Strict compliance with zoning notice procedures is required for zoning enactments.
  • City of Guntersville v. Shull, 355 So. 2d 361 (Ala. 1978); Roberson v. City of Montgomery, 285 Ala. 421, 233 So. 2d 69 (1970): Zoning regulates land use and building character. A revenue measure that does not regulate use is not zoning.
• Pleading Posture Reminder:
  • Ex parte Mobile Infirmary Ass’n, 349 So. 3d 842 (Ala. 2021); Ex parte Abbott Labs., 342 So. 3d 186 (Ala. 2021): At this stage, the question is whether the plaintiff might possibly prevail if allegations are proven, not whether the plaintiff will ultimately prevail.

Legal Reasoning

1) Equal Protection

The ordinance classifies entities based on whether their multifamily housing is designated as an SOHD and whether it exceeds 200 bedrooms. Those with more than 200 bedrooms must remit a business-license fee equal to 3% of rents; other rental businesses remain at 1%. Because no suspect class or fundamental right is implicated, the rational-basis test applies. The complaint alleges that:

• The line at 201 bedrooms is arbitrary, with no meaningful relation to infrastructural burdens when compared to nonstudent developments of equal size; and
• In practice, those targeted are “large out-of-state developers,” indicating a protectionist tilt.

The Court highlighted that, although challengers ultimately must negate every conceivable rational basis (Northington), at the pleading stage they are not required to allege and refute every such basis—echoing Wroblewski and consistent with Thorn and Metropolitan Life. The allegations, if developed through discovery, could establish that the classification (SOHDs > 200 bedrooms) is not rationally related to the City’s stated goals. Dismissal was therefore premature.

2) Due Process (Vagueness)

Vagueness doctrine demands both fair notice and constraints on arbitrary enforcement (Grayned; Hill). The ordinance incorporates Tuscaloosa Code § 24-5’s definition of SOHD, which:

• Uses non-exhaustive “defining characteristics”;
• Lists additional non-exhaustive “determining factors” (layout, proximity to a university, portfolio, marketing/branding, amenities, furnishings); and
• Vests the zoning officer with discretionary authority to designate a development as an SOHD even without specific characteristics or without verifying tenant student status.

The taxpayers plausibly alleged that a person of ordinary intelligence cannot reasonably predict whether a development will be designated an SOHD and subjected to the tripled tax, and that enforcement standards are insufficiently cabined, enabling arbitrary or discriminatory application. Standing is satisfied because the taxpayers were so designated and paid the 3% tax. The ordinance’s permissive appeal language (“may appeal”) and McClain’s futility principle meant no requirement to exhaust administrative remedies before bringing a facial vagueness challenge. Consequently, the vagueness claim survives dismissal.

Note: Justice Cook dissented on this point, emphasizing Alabama’s high bar for vagueness challenges and expressing doubt both as to the merits and standing. That separate opinion underscores that ultimate success on vagueness remains uncertain, even though pleading suffices.

3) Dormant Commerce Clause

The complaint alleges that the ordinance, while facially neutral, in practical effect imposes the tripled fee only on out-of-state owners/operators of large, student-oriented complexes—protecting in-state “mom-and-pop” landlords. Discriminatory purpose and effect are classic dormant Commerce Clause concerns (Brown-Forman; Limbach; Camps Newfound). A law that favors in-state interests over out-of-state competitors is generally invalid per se without resort to Pike balancing.

The Court held these allegations suffice at the pleading stage. If discovery substantiates that only out-of-state firms bear the treble fee and that the classification’s real-world effect is protectionist, the ordinance could face strict scrutiny under the dormant Commerce Clause and be difficult to defend.

4) Zoning-Notice Statutes Not Triggered

The taxpayers argued the ordinance was “essentially” a zoning measure (because it borrows zoning definitions; relies on the zoning officer; permits appeal to the Zoning Board) and thus required strict compliance with § 11-52-77’s notice and hearing procedures (Kennon). The Court disagreed. Relying on Shull and Roberson, it held the ordinance does not regulate land use or building character; it imposes a revenue measure—a business-license tax—despite its reliance on zoning concepts. Incorporating zoning-defined categories into a tax ordinance does not convert the tax into a zoning enactment. As a result, the notice-and-hearing regimen for zoning ordinances did not apply, and dismissal of this claim was affirmed.

Impact

For Municipalities

• Tax Classifications Linked to Zoning Concepts: Cities may employ zoning-defined categories to measure or trigger tax obligations without automatically invoking zoning notice requirements. However, such classifications remain vulnerable to constitutional attack if they are vague, arbitrary, or protectionist in effect.
• Drafting Guidance: Non-exhaustive definitions and factor lists that vest broad discretion in administrators heighten vagueness risk. To minimize exposure, municipalities should adopt objective, measurable criteria for classifications (e.g., fixed occupancy rates, specific distance bands, verified student-status thresholds) and promulgate published guidance to constrain enforcement discretion.
• Commerce Clause Caution: When a tax category correlates strongly with out-of-state ownership, defendants should anticipate discovery into purpose, effect, and market composition. Data showing evenhanded application to in-state and out-of-state actors, and credible evidence of genuine local benefits (infrastructure cost recovery) will be critical.

For Taxpayers and Property Owners

• Pleading Pathways Preserved: Challengers need not negate every conceivable rational basis in the complaint to survive Rule 12(b)(6). Plausible allegations of arbitrariness or protectionist effect suffice to unlock discovery, especially where thresholds (like “>200 bedrooms”) appear unmoored from stated goals.
• Vagueness Is Plausible Where Discretion Is Unbounded: Non-exhaustive criteria, lack of weighting, and absence of clear standards can plausibly show inadequate notice and risk of arbitrary enforcement. Paying the assessed tax and having been designated under the challenged definition strengthens standing.
• Exhaustion Not a Barrier to Facial Challenges: When the challenge is legal and the administrative body cannot grant relief (e.g., invalidate the ordinance), exhaustion may be unnecessary—particularly where appeal is permissive and would be futile under McClain.

Likely Course on Remand

Discovery will likely focus on:

• How many properties have been designated SOHDs; the in-state/out-of-state breakdown of ownership;
• Whether in-state owners with >200 bedrooms exist and, if so, how they have been treated;
• Empirical evidence tying SOHDs >200 bedrooms to disproportionate municipal costs, as compared to nonstudent complexes of similar size;
• Internal guidelines, training materials, and decision records used by the zoning officer in making SOHD designations;
• Legislative history and contemporaneous statements bearing on purpose, including the cited remarks about “large out-of-state developers.”

The outcome may turn on whether the City can demonstrate (1) a non-protectionist, evidence-based rationale for the >200-bedroom threshold specifically for student-oriented housing, (2) evenhanded application across in-state and out-of-state entities, and (3) sufficiently determinate criteria or practices that mitigate the risk of arbitrary enforcement.

Complex Concepts Simplified

• Rule 12(b)(6) Dismissal: At the motion-to-dismiss stage, courts ask only whether the complaint, taken as true, plausibly alleges a claim that could entitle the plaintiff to relief. It is not a merits decision.
• Rational-Basis Review: A deferential test for equal-protection challenges. A law survives if any conceivable, legitimate purpose could be served and the classification is rationally related to that purpose. Importantly here, at the pleading stage, plaintiffs need not negate every conceivable rationale to proceed.
• Vagueness: A law is unconstitutionally vague if people of ordinary intelligence cannot tell what is covered or if it invites arbitrary enforcement. Open-ended criteria with no clear weights or benchmarks can raise concerns, especially when major financial consequences hinge on discretionary designations.
• Dormant Commerce Clause: Even without federal legislation, states and cities cannot enact protectionist measures that favor in-state economic interests at the expense of out-of-state competitors. If a law is discriminatory in purpose or effect, it is generally invalid; if it is evenhanded but burdens interstate commerce, courts balance burdens against local benefits.
• Zoning vs. Tax Measures: Zoning regulates land use and building characteristics within districts. A business-license tax, even if keyed to zoning-based categories, remains a revenue measure unless it regulates use; thus, zoning notice statutes do not automatically apply.
• Exhaustion of Administrative Remedies: Plaintiffs generally must exhaust administrative remedies before suing, but not when the agency cannot grant the requested legal relief or where the ordinance itself provides only a permissive (not mandatory) administrative appeal.

Conclusion

Campus Crest v. City of Tuscaloosa offers a practical roadmap for pleading constitutional challenges to municipal tax classifications in Alabama. The Court reaffirmed that:

• Equal-protection challenges under rational-basis review are not foreclosed at the pleading stage by the heavy merits burden; plausible allegations of arbitrariness can proceed to discovery.
• Vagueness challenges may survive Rule 12(b)(6) when the operative definition is non-exhaustive, lacks clear standards, and authorizes broad discretion with significant economic consequences, and when challengers are directly affected.
• Facially neutral taxes alleged to discriminate in effect against out-of-state actors state a classic dormant Commerce Clause claim, potentially triggering per se invalidity analysis.
• Borrowing zoning definitions and officials to administer a tax does not morph a revenue measure into a zoning ordinance; zoning notice-and-hearing statutes do not apply absent land-use regulation.

Although the Court did not decide the ultimate constitutionality of Tuscaloosa’s SOHD surcharge, it underscored that municipal finance innovations cannot evade constitutional scrutiny through flexible definitions and discretionary enforcement. At the same time, it protected municipal prerogatives by rejecting the attempt to recast tax administration as zoning. The split opinions—particularly Justice Cook’s skepticism about the vagueness claim—signal that success on the merits is far from assured. On remand, the case will turn on facts: how the ordinance operates in practice, whether its thresholds are empirically grounded, and whether its application is evenhanded across state lines.