The Alabama Legislature adjourned sine die at midnight on June 9, with final passage of the two budgets and the remaining “Handshake with Alabama” bills, concluding what many are calling one of most productive legislative sessions in recent history. Several important economic development proposals designed to encourage job creation and attract foreign investment in Alabama crossed the finish line during the last two weeks of the session. Unfortunately, several Senate Democrats slowed the debate on the last day of the session, and thus several critical tax bills failed to cross the finish line before the session adjourned, including HB 427, the Alabama Taxpayers’ Bill of Rights II/Alabama Tax Appeals Commission Act, and HB 548, the Gross Income Regulation Compromise; but we expect these proposals to be reintroduced next session, perhaps with amendments.
The following is a summary of the tax bills of statewide importance that were passed by the Legislature this session and either signed into law or are expected to be signed into law by Governor Bentley in the next few days.
Act 2011-17 (SJR 4) – Rejection of Business Privilege Tax (“BPT”) Regulation: sustains the Legislative Council’s unanimous decision last summer to reject the Department of Revenue’s controversial regulation that attempted to repeal the statutory deduction for the book value of a taxpayer’s investments in the equity of another business entity that’s also doing business in Alabama.
Act 2011-155 (HB 61) - Small Business Health Care Deduction: increases the state income tax deductions for both qualifying employees’ and employers’ (i.e., those with less than 25 employees) payments of health insurance premiums to 200% of the health insurance premiums. A qualifying employee must be employed by a qualified employer, earn no more than $50,000 of annual wages, and report no more than $75,000 of adjusted gross income ($150,000 if married filing jointly) during the applicable tax year. This Act was one of the top legislative priorities of the Business Council of Alabama (BCA), House Speaker Mike Hubbard, and Governor Bentley.
Act 2011-551 (HB 230) – The Full Employment Act of 2011: as promised by Governor Bentley in his State of the State speech, offers a one-time income or financial institution excise tax credit of $1,000 for each new job created by small businesses (i.e., less than 50 employees). To be eligible for the credit, wages for the new employee must exceed $10 per hour. The credit is available in the tax year in which the new hire completes 12 months of consecutive employment, provided that the employer has a net increase in the total number of full-time employees in Alabama on the last day of such tax year. The credit is not refundable or transferrable, but it is available to owners of pass-through entities on a pro rata basis. The credit may also be combined with the deduction available for hiring unemployed workers under the Reemployment Act of 2010, which applies to tax years 2011 and 2012.
Act 2011-648 (SB 477) – The Tariff Credit Act of 2011: has a limited focus and is designed to encourage foreign manufacturers to locate in Alabama by providing an income tax credit to companies investing in qualifying projects that meet certain minimum requirements. The minimum capital investment in order to qualify is $100 million and the project would have to create at least 100 new jobs, with a base wage at least equal to the state’s individual median income. Approved investing companies would be eligible to receive a transferrable income tax credit up to the amount of certain Federal tariff costs during the term of the qualifying project, but the amount of the credit shall not exceed the lesser of $20 million or 25 percent of the total amount of an investing company’s capital investment in the qualifying project. Any project seeking the credit must go through a recommendation process involving the Alabama Development Office, the Alabama Department of Revenue (ADOR), and the Governor’s office.
Act 2011-616 (HB 434) – Double-Weighted Sales Factor and Market Sourcing: amends Article IV of Alabama Code § 40-27-1, i.e., Alabama’s version of the Multistate Tax Compact, to double-weight the sales factor in the currently equally-weighted three-factor formula used to apportion business income to Alabama. In addition, the bill would amend Alabama’s apportionment methodology by converting Alabama from a “cost of performance” state to a “market source” state for certain receipts from intangibles or services. This bill provides that sales of services and other intangible property would be sourced to Alabama if the taxpayer’s market for the sales is in Alabama (e.g., the customer is located in Alabama, regardless of where the service is performed).
Act 2011-563 (HB 355) – Streamlined Sales Tax Study Commission: establishes the Alabama Streamlined Sales and Use Tax Commission to develop, implement, and administer the programs necessary for Alabama to come into compliance with the Streamlined Sales and Use Tax Agreement (“SSUTA”), in the event that federal legislation implementing the agreement becomes law. The Commission would be required to submit a report and draft legislation regarding the necessary changes to Alabama’s sales and use tax laws in order to comply with the SSUTA.
Act 2011-644 (SB 395): provides a state income tax credit to individual homeowners who retrofit their homes to help resist wind and storm damage. The credit would be the lesser of 25 percent of the cost to retrofit the home or $3,000.
Act 2011-565 (HB 399): substantially revises the motor fuel tax laws, including the collection and enforcement process, by imposing the tax on the removal or withdrawal of motor fuel from the terminal using the terminal rack and not by bulk transfer or when motor fuel is imported into the state other than by bulk transfer.
Act 2011-544 (HB 179): expands the ad valorem property tax definition of “residential property” to include single-family dwellings and lots under construction until sold or otherwise put to a use other than as a single-family dwelling for a period of up to two years.
SB 493: Tornado Recovery Tax Incentive Protection Act of 2011: provides that any tax abatement that may be otherwise granted pursuant to the Tax Incentives Reform Act of 1992 shall not be subject to disqualification solely because the underlying property or transaction relates to repairs or replacement of property damaged in the devastating tornado outbreaks this Spring, as opposed to new construction. This expansion of TIRA is effective for any property acquired or transactions entered into before December 31, 2012. The Act also provides that the wage and employment requirements for Alabama’s capital credit are tolled for two years for otherwise qualifying projects that were damaged by the tornadoes.
SB 506: amends Ala. Code §§ 40-8-1 and 40-9-19 to provide that the ad valorem tax classification of property as residential property or a homestead would not be affected under certain conditions when the property is damaged by a natural disaster, rendering it uninhabitable.
Act 2011-689 (SB 158): establishes the Neighborhood Infrastructure Incentive Plan Act of 2011, which would provide for an annual income tax credit over a period of 10 years for contributions made by members of an authority for completing a neighborhood infrastructure project.
Act 2011-695 (SB 255): makes several technical corrections to the film incentives portion of the Entertainment Industry Incentive Act of 2009, including clarifying the qualified expenditures applicable to a television series or commercial, and providing that the income tax credits are available in the year in which the production activity concludes. This bill would also clarify that the sales, use and lodgings tax exemption only applies to the state portion of these taxes, and provides maximum expended amounts beyond which rebates and exemptions are not allowed.
Act 2011-254 (SJR 97): establishes the Alabama Video Tax and Fee Study Committee “for the purpose of studying the current tax and fee disparities in the Alabama video services market place.” The study committee is to recommend legislation that would eliminate this disparity “so that Alabama consumers may realize the benefits of lower and fairer government-mandated fees on their video services and have a tax and fee-neutral choice for such services.”
Act 2011-537 (HB 76) – Surplus Lines Insurance Multi-State Compliance Compact Act: implements the provisions of the Non-admitted and Reinsurance Reform Act (NRRA) that is intended to simplify the web of taxing, licensing and eligibility rules for surplus lines insurance across all 50 states. The NRRA was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and is effective July 21, 2011. Once another state adopts a similar compact, the Act will provide an allocation of premium taxes paid by surplus line insurers in accordance with uniform allocation formulas to be developed by the Commission