Baldwin County Sewer Service, LLC (BCSS) is a privately owned wastewater utility that operates six plants and services rural and unincorporated areas using pumps, pipes, valves, and related systems. BCSS also installs and maintains grinder pumps, lateral lines, and related in order collect, control, transport and treat wastewater in compliance with the Alabama Department of Environmental Management (ADEM), who issues permits for this to BCSS. As a result of these permits and activities, the Department of Revenue (DOR) has issued exemption certificates under the “pollution control” statute in Alabama, which allow BCSS to purchase equipment and materials used for the control or elimination of water pollution without being assessed sales or use tax. However, in 2023, the DOR only offered a limited certificate for the pipe and fittings used for construction and repair of main sewer lines and declined to provide an exemption for lateral lines and pumps to transport wastewater from homes and commercial properties to those main lines. BCSS appealed this limiting of exemptions, which the DOR also applied to the 2024 renewal for BCSS’s exemption certificates.
Though both sides agreed on many facts of the case, including that BCSS’s treatment plans and collection do treat and eliminate wastewater and that wastewater is a form of water pollution, they differed on key points of how the profitability of the transport should (or should not) apply to possible exemptions. The DOR claims that due to the pumps and lateral lines being a key driver of the profit- driven business, these lines and equipment are subject to sales and use tax. The exemption, according to the DOR, is voided because the purpose of these lines is to generate profit, rather than to control pollution, which is required by the Alabama tax code. BCSS claims, however, that their whole business model is based on pollution control and that they are acting in the public interest and assert that profitability does not negate the fact that they are primarily controlling water pollution, which would entitle them to the full exemption which they had previously received.
The Court of Appeals agreed with BCSS noting that the equipment was primarily procured for pollution control. The Court highlighted the fact the DOR had a long-term history of issuing the certificates, which suggests that the DOR also believed BCSS’s operations fit within the requirements of the exemption. Though BCSS did have a profit motive, this does not automatically disqualify them from receiving an exemption based on the overall purpose of the items in question.
Taxpayers looking to take advantage of exemptions should note profitability does not necessarily negate claims of public good. Though BCSS was operating for profit, the treatment of wastewater makes it difficult to claim they are not focused on pollution control. When faced with a sudden change in status from the Department of Revenue, a taxpayer should examine whether any underlying facts have changed, since the long-term previous relationship can also come into play when determining how to interpret a new situation. Good records and an awareness of local rules and changes, or lack of changes, can make all the difference when determining appeals. (Opinion and Final Order entered October 21, 2025, Patterson, Jeff, Chief Judge, Baldwin County Sewer Service, LLC v. Alabama Department of Revenue, Alabama Tax Tribunal, Case Numbers. S. 23-654-JP, S. 24-500-JP)