Alabama Supreme Court Partly Revives Challenge to Tuscaloosa’s “Student Housing” Tax

In an October 2025 decision, the Supreme Court of Alabama breathed new life into a lawsuit brought by a group of student-housing owners against the City of Tuscaloosa.  It held that several constitutional claims, previously dismissed by the Tuscaloosa Circuit Court, may proceed.

Background

Fourteen companies that own or operate large student-oriented housing developments (SOHDs) in Tuscaloosa sued the City arguing that Ordinance No. 9112 unfairly triples their business-license tax. Under the ordinance, landlords generally pay a 1% fee on rental income—but SOHDs with more than 200 bedrooms must pay 3%. City officials justified the hike by claiming dense student housing strains infrastructure and public services.

Taxpayers’ Claims

The owners—many based outside Alabama—alleged that the ordinance:

• Violates Equal Protection by arbitrarily singling out large “student-oriented” complexes without a rational basis;

• Denies Due Process because the definition of an SOHD is vague and gives zoning officials broad, subjective discretion;

• Breaches the Dormant Commerce Clause by effectively targeting out-of-state property owners for higher taxation; and

• Acts as a Zoning Measure adopted without the public-notice procedures required by Alabama law.

  
  

Court’s Ruling

Justice Sellers, writing for the majority, held that the trial court erred in dismissing the equal-protection, due-process, and dormant commerce clause claims at the pleading stage. It held that the owners alleged facts sufficient—such as the City’s focus on “large out-of-state developers” and the arbitrary 200-bed threshold—to survive the City’s motion to dismiss.

However, the Court agreed that the ordinance is not a zoning regulation, since it taxes property use rather than restricting it. That portion of the dismissal was affirmed.

What’s Next

The case now returns to Tuscaloosa Circuit Court for further proceedings on the constitutional challenges. If the owners succeed, Tuscaloosa could be forced to refund millions in license-fee revenues and rethink how it regulates student housing. On the other hand, if the City prevails, then other cities in Alabama may follow suit with additional tax levies on multi-family housing.