Starting October 1, 2015, the Alabama Department of Revenue will no longer issue a Certificate of Good Standing to a requesting party, pursuant to the enactment of Alabama Senate Bill 243. Good Standing Certificates have been used for many years to confirm that a specific entity is in “good standing” with the Alabama Department of Revenue, due to the entity’s payment of the Business Privilege Tax. Lenders routinely required a Certificate of Good Standing to confirm that the entity, as the borrower, has the authority to execute the loan.
Based on the law change, the Alabama Department of Revenue will now issue a Certificate of Compliance, which certifies that the entity has paid all applicable state taxes. Prior to the enactment of Senate Bill 243, the party requesting a Certificate of Good Standing would normally receive it within 24 hours of the request. The Alabama Department of Revenue has suggested that it may take up to 10 days to receive a Certificate of Compliance. The Alabama Department of Revenue has also communicated that a Certificate of Compliance will require the execution of a power of attorney form, if a party other than an officer for the entity is requesting a Certificate of Compliance.
The projected 10 day turnaround time and the power of attorney requirement will likely cause hardship to borrowers, lenders, and other parties whose business transactions require a faster turnaround time. Discussions are ongoing with the Alabama Department of Revenue to try and address these concerns. In the interim, it is important to be aware of this upcoming change and address the state tax compliance issue at an early stage of the business transaction process, especially those conducting business transactions with lenders on a regular basis.