We expect the following 2011 bills, or similar proposals, to be re-introduced, perhaps with amendments, next session:
HB 427 – “Alabama Taxpayers’ Bill of Rights II” / Alabama Tax Appeals Commission Act: would create an independent tax tribunal, known as the Alabama Tax Appeals Commission (“ATAC”), by abolishing the current Administrative Law Division and transferring both the personnel (including its only Administrative Law Judge) to a newly-formed state agency under the executive branch. This bill also contains several important changes and updates to the Alabama Taxpayers’ Bill of Rights Act of 1992 (“TBOR”), such as extending the time period for filing an appeal or petition for review from 30 to 60 days and eliminating the $50 failure-to-file penalty for any individual income taxpayer that is owed a refund on the delinquent return and otherwise requiring a 30-day notice from the ADOR. Since the enactment of the TBOR, its federal counterpart has been amended several times, and numerous Administrative Law Division and ADOR rulings interpreting the Act have been issued. Also, the bi-annual Council On State Taxation (COST) “Due Process Scorecard” gave Alabama a “D” grade, pointing out several deficiencies or taxpayer inequities that should be remedied.
HB 427 was passed unanimously by the House last session and received a favorable vote from the Senate Judiciary Committee before stalling in the Senate logjam during the last few days of the session. The Alabama State Bar was a strong advocate for the bill, and special thanks are due to President Alyce Spruell, President-Elect and mediator Jim Pratt, and of course, the lead sponsors, Rep. Paul DeMarco and Sen. Ben Brooks. Messrs. DeMarco and Brooks have already indicated they plan to reintroduce HB 427, with agreed amendments, early next session.
HB 548 – “Gross Income Regulation” Compromise: would modify the definition of “gross income,” override the inconsistent ADOR “Gross Income Regulation” and affirm a recent Administrative Law Division McNees ruling so that resident individuals who own interests in partnerships, LLCs, or S corporations, or who are beneficiaries of estates or trusts, operating a multistate business, must include their proportionate share of income from the pass-through entity, regardless of where the income is earned. Conversely, resident individual-owners would receive an income tax credit for certain taxes paid by the entity to other states or foreign countries on behalf of the individual owner because the other state imposes an income tax withholding or composite return obligation or certain types of entity-level taxes on the pass-through entity. The amount of the credit would be limited to the amount of tax that would have been paid on the same income using the applicable Alabama income tax rates, similar to the rule for individual taxpayers.
HB 485 – Alabama Data Processing Center Economic Incentive Enhancement Act of 2011: In order to encourage data centers to locate in Alabama, this bill would extend the time period for abatements of certain noneducational sales, use, and property taxes from the current 10 years to as long as 30 years, depending on the total capital investment, and would also allow abatements for recurring capital investment in a data center during the abatement period. This bill would also reduce the employment threshold to a minimum of 20 new jobs.
HB 365: would require notification to certain Alabama purchasers of tangible personal property (i.e., with a delivery location in Alabama) regarding their obligation to remit sales or use taxes, including a “pop-up” notification in the case of retail sales facilitated through an internet website. This bill would also provide a mechanism for the Department of Revenue to collect and remit not only the state but the county and municipal use tax from Alabama residents through their individual income tax return. This bill, championed by the Alabama Retail Association, was amended by the Senate Commerce, Transportation and Utilities Committee to more clearly explain in the “pop-up” notification that the seller is not collecting sales tax on the transaction and to reflect that the customer’s use tax obligation is a long-standing part of Alabama law.
HB 478 and SB 373: would allow Alabama companies that undertake certain qualifying projects, similar to those provided by the Tax Incentives Reform Act of 1992, to also qualify for “withholding incentives,” which would be in the form of a percentage of the state income taxes withheld from the wages of eligible employees. The incentives are designed to encourage the retention of existing jobs and create new jobs by increasing development and growth of industry within the state. The State Industrial Development Authority would determine whether a project qualifies for the withholding incentives.
HB 301 – Mandatory Unitary Combined Reporting: Similar to the proposals introduced in the 2008 and 2009 regular sessions, this bill would require the Commissioner of Revenue to impose unitary combined reporting “when an Alabama taxpayer is part of a unitary business consisting of multiple business entities.” Very little detail regarding the mechanics of the unitary report is provided by the bill, which directs the ADOR to fill in the gaps with regulations. Taxpayers do not appear to have the option under this unique (to say the least) bill to elect unitary combined reporting, which is a fundamentally unfair result.
Uniformity of Tax Classification of Pass-through Entities (not introduced in 2011): At the request of the ADOR, this legislation would harmonize the classification of various pass-through business entities (e.g., LLCs and LPs) for Alabama state and local tax purposes by limiting conformity with the federal “check the box” regulations to only Alabama income and financial institution excise taxes, while preserving the sales, use and rental tax exclusions for certain intercompany transactions and the property, business privilege, and sales and use tax exemptions for disregarded entities that exist under Alabama’s current classification regime. Two of the authors are members of an Alabama State Bar Task Force that’s working with representatives of the ADOR, the Alabama Society of CPAs, the Business Council of Alabama and the Alabama League of Municipalities to develop a fair and balanced legislative proposal.
The proposal would also clarify that members of a multi-member LLC are not personally liable for the LLC’s sales, use, payroll and other non-income taxes solely because their LLC is classified as a partnership for federal and Alabama tax purposes, thereby codifying the ruling by the Administrative Law Division in Nonna Rose Kingsley, LLC, now pending in Jefferson County Circuit Court.