Bradley attorney Bruce Ely was quoted in the Bloomberg BNA Daily Tax Report on how Alabama may face legal challenges to a new federal tax on certain foreign corporate income. The state is set to conform automatically to the new foreign income provisions of the 2017 federal tax act, which would be a tax on global intangible low-taxed income (GILTI) and would apply to Alabama-based companies that pay the state's 6.5 percent corporate income tax. States still have time to pass legislation decoupling from the foreign income provisions, and groups such as the Council On State Taxation (COST) are urging states to break from these base-broadening provisions.
Alabama “may soon become an outlier in the Southeast if we don't decouple from GILTI,” said Ely.
Despite the constitutional concerns about the GILTI tax, Alabama's application of the new federal interest deduction cap is likely to have the larger impact on Alabama businesses, said Ely, who is also a member of Bloomberg Tax's State Tax Advisory Board.
The revenue department's formula for applying the interest cap creates a “double whammy” by its treatment [disallowance] of “related party interest,” Ely explained.
“A lot of companies doing business in Alabama are just beginning to realize just how hard this cap may hit them,” he said. He and other practitioners are suggesting the department consider a regulation to adjust the way it calculates the interest cap, he added.
The complete article, “Alabama, Other States Invite Lawsuits if They Tax Foreign Income,” appeared in the Daily Tax Report on August 8, 2018. (login required)