For tax years beginning after 2010, Alabama departed from the “traditional” Multistate Tax Compact (the “Compact”) by moving from an equally weighted three-factor apportionment formula to a double-weighted sales factor and from cost of performance (“COP”) sourcing to one variety of market-based sourcing for sales of services and intangibles. Ala. Act 2011-616. There is, of course, litigation pending in California, Michigan, Minnesota, Oregon, and Texas, as well as other states that also are—or were—parties to the Compact regarding whether taxpayers retain the right to use the Compact’s equally weighted three-factor formulary apportionment or the COP sourcing methodology, even if the Compact has been amended or repealed subsequently in that state. The most oft-cited authority is International Business Machines (IBM) Corp. v. Dep’t of Treasury, 852 N.W.2d 865 (Mich. 2014), in which the Michigan Supreme Court ruled that subsequent repealer legislation did not prevent taxpayers from using the Compact’s three-factor apportionment formula in calculating their 2008 corporate taxes.
The legislatures of several Compact member-states have responded in a variety of ways, but so far the State of Alabama has yet to repeal Article III (taxpayer option) of its version of the Compact. Our next legislative session begins March 3, however.
The statute of limitations for filing refund claims in Alabama is generally three years from the date of filing the initial return, or two years from date of payment of the tax, whichever is later, assuming the underlying tax return was filed in a timely manner and no statute waiver is in effect. See Ala. Code § 40-2A-7(c)(2). Most Alabama corporate income tax returns are due March 15, but are often extended (if the Federal return is properly extended) to September 15. Multistate corporations that would benefit substantially by applying either an equally weighted three-factor apportionment formula or COP sourcing should consider amending their 2011 Alabama income tax return, typically before the third anniversary date of its filing. The amended return should be marked as a refund claim and, of course, the basis for the claim should be explained either in a cover letter or statement attached to the amended return.
If you choose to file an amended return with the Alabama Department of Revenue, however, please note Alabama’s two-step statute of limitations, which parallels the federal rule. Unless the ADOR affirmatively accepts or rejects your amended return within six months after it is filed (certified mail, please), it is deemed denied at that point. Taxpayers then have two years in which to file suit with the newly established Alabama Tax Tribunal or in the appropriate circuit court. See Ala. Code § 40-2A-7(c)(3) through (5).