The 2014 Regular Session of the Alabama Legislature came to an abrupt end on Thursday, April 3. While several significant tax bills were passed by the Legislature and signed into law by Governor Robert Bentley, some important bills died when the legislative leadership declared an adjournment of the session more than four hours earlier than projected. Below is a summary of various tax-related bills of statewide impact that were enacted this session. There were also a number of local acts passed that affect particular counties, municipalities, and organizations, but those are not summarized here.
I. Income/Business Privilege Taxes
Transferability of the Historic Tax Credit and Other Technical Corrections – Act No. 2014-452 (HB 509): Act No. 2013-241 provided a credit against the income or financial institution excise tax (FIET) liability of the owner or its partners/members for the rehabilitation, preservation, and development of certain historic structures. Act No.2014-452 contains several technical corrections, such as clarifying that the annual $20 million of credit reservations are awarded on a calendar-year basis and removing any restrictions on changes in ownership of the qualified structure prior to placing the rehabilitation in service. Notably, the new act permits a one-time transfer of the tax credit, but provides that the owner, allocatee, or transferee of the credit will be liable for any credit recapture.
The historic tax credit can only be applied against the state portion of the FIET and income taxes, and the maximum credit for a commercial project is $5 million. The credits may not be utilized until the 2014 tax year and the credit is still scheduled to sunset three years from the original date of enactment (i.e., May 16, 2016).
Income Tax Credit for Certain Adoptions – Act No. 2014-413 (HB 48): This act provides a one-time, refundable income tax credit to taxpayers who adopt a child through a private intrastate adoption or adopt a qualified foster child. The credit is $1,000 per adopted child, and is retroactively effective to January 1, 2014. In addition to the tax credit, Act No. 2014-413 makes available $15,000 in postsecondary education assistance at any Alabama public college or university, public two-year college, or public trade school to certain adopted children. This postsecondary assistance is effective beginning October 1, 2016.
Optional Standard Deduction – Act No. 2014-406 (HB 257): This act amends the requirement in Ala. Code § 40-18-15(d) that married couples filing separate Alabama income tax returns both claim the optional standard deduction if one spouse elects to claim that deduction. The amendment allows spouses who have lived apart for the entire taxable year to claim either the optional standard deduction or itemize their deductions, independent of the other spouse’s election. The act makes clear that neither spouse can claim a deduction for expenses paid by the other spouse. This change is effective, beginning with tax returns filed in 2014.
Career-Technical Dual Enrollment Program Income Tax Credit – Act No. 2014-147 (HB 384): This act establishes an income tax credit for contributions made to the Department of Postsecondary Education for qualifying educational expenses directly associated with the Career-Technical Dual Enrollment Program. The program is designed to allow eligible high school students to also enroll in college-level career technical education courses offered at Alabama Community College System institutions and allows those students to concurrently earn high school and college credit. The income tax credit is equal to 50 percent of a taxpayer’s total contributions to the Department of Postsecondary Education, but is limited to 50 percent of the taxpayer’s total Alabama income tax liability or $500,000, whichever is less. The total amount of cumulative credits under Act No. 2014-147 is $5,000,000 annually.
Federal EIN or Social Security Number Required for Business License Applications – Act No. 2014-430 (SB 312): Act 2014-430 amends Ala. Code § 40-12-30 to require all applicants for new or renewed business licenses to provide the applicant’s federal employment identification number or Social Security number. In addition, this act provides that all business privilege license application information for new licenses or renewals shall be transmitted electronically by the probate judge or county licensing official to the ADOR as prescribed by the Department. These changes go into effect October 1, 2014.
II. Transactional Taxes
Retroactive Clarification of Private School Sales/Use Tax Exemption – Act No. 2014-325 (HB 129): This act retroactively clarifies and confirms that private schools, colleges, and universities are exempt from state and local sales and use taxes. This act was necessitated by ADOR Chief Administrative Law Judge Bill Thompson’s ruling in Columbia Southern Education Group v. Baldwin County, Admin. L. Div. (Aug. 15, 2013) (on appeal), where he held that private schools in Alabama are not exempt from state or local sales and use taxes, and that a 1959 act and a 1961 ADOR regulation were invalid.
Estimated Sales Tax Payment Threshold – Act No. 2014-316 (HB 151): Under current law, an Alabama taxpayer whose average monthly state sales tax liability is $1,000 or greater during the preceding calendar year is required to make estimated sales tax payments to the ADOR on or before the 20th day of the month in which the liability occurs. Act No. 2014-316 increases the threshold for estimated payments from $1,000 to $2,500. This change goes into effect August 1, 2016, and was championed by the Alabama Retail Association.
Durable Medical Equipment Exemption – Act No. 2014-453 (HB 280): This act provides that durable medical equipment, prosthetics, orthotics, and medical supplies as defined by Medicare that are sold or rented pursuant to a valid prescription and covered by Medicare, Medicaid, or a health benefit plan are exempt from state and local sales, use, and rental taxes. The act also repeals Ala. Code § 40-9-39.1, which provided a narrower exemption and was enacted last year.
Prepaid Wireless Service Evidenced by Card Subject to Sales Tax – Act No. 2014-336 (HB 373): Under current law, prepaid calling cards and prepaid authorization numbers are deemed to be tangible personal property, the sale of which is subject to sales and use tax. This act amends the definition of prepaid telephone calling card to clarify that prepaid wireless services evidenced by a physical card and wireless services not evidenced by a physical card but considered to be a prepaid authorization number are subject to sales and use tax. Act No. 2014-336 also provides that the ADOR or local tax officials may not seek payment of sales taxes not collected, nor may taxpayers seek refunds, under the prior definition. However, this limitation of authority does not apply to audits that began or assessments that were entered prior to the effective date of the act. Act No. 2014-336 became effective on April 8, 2014.
III. Ad Valorem Property Taxes
Business Personal Property Online Filing System – Act No. 2014-415 (HB 108): This act requires the ADOR to create a centralized online filing system for business personal property tax returns, called the Optional Personal Property Assessment Link (OPPAL). All Alabama taxing jurisdictions will be required to accept business personal property tax returns filed using OPPAL; but the system is optional for taxpayers. Not only does Act No. 2014-415 create a single-point filing system, it also provides uniform procedures and standardized formatting for online filing across all 67 Alabama counties. The OPPAL system must be operational no later than September 30, 2016, and will be available for use in fiscal years beginning on or after October 1, 2016. Act No. 2014-415 also creates a ten-member advisory committee to review the ADOR’s design and operation of the system and to make recommendations regarding system requirements and functionality to the Commissioner of Revenue. The advisory committee must hold its first meeting no later than September 30, 2014.
In addition to OPPAL, Act No. 2014-415 also creates a non-itemized short-form tax return for certain small businesses. The short-form return will be available to taxpayers who either: (1) filed an itemized personal property tax return that included $10,000 or less in total property acquisition costs in the previous tax year, or (2) properly filed a short form in the previous tax year. If the short-form return is used, the $10,000 amount will be used by the local tax assessing official as the market value of the property when calculating the taxes due. Taxpayers may begin using the short-form return for the fiscal year beginning October 1, 2014.
Act No. 2014-415 does not prevent a county (e.g., Shelby County) from providing a separate and alternative electronic filing system for business personal property tax returns, nor does it prevent a county property tax official from enforcing mandatory electronic filing of business personal property tax returns pursuant to a local act of the Alabama Legislature.
IV. Miscellaneous But Very Important
“Alabama Taxpayer Fairness Act” – Act No. 2014-146 (Substitute HB 105): The Alabama Taxpayer Fairness Act was signed into law by Governor Bentley on March 11. It represents a modified version of the bill formerly referred to as “TBOR II.” Most importantly, Act No. 2014-146 establishes the Alabama Tax Tribunal (ATT) by abolishing the current Administrative Law Division of the ADOR and transferring both the personnel and equipment to a newly formed, independent state agency under the executive branch. The ATT provisions are substantially similar to the American Bar Association’s Model State Administrative Tax Tribunal Act, except that appeals from the ATT will continue to be filed with the appropriate circuit court rather than with the Court of Civil Appeals. The annual appropriation earmarked for the ALD is carved out and assigned to the ATT, so there should be no additional cost to Alabama taxpayers for creating the tribunal. Alabama was in the distinct and shrinking minority of states that lacked an independent tax appeals tribunal, recently receiving a “D” grade on the latest State Tax Due Process Scorecard issued by the Council On State Taxation (COST) primarily for this reason. Read more about the Alabama Taxpayer Fairness Act.
Alabama Limited Liability Company Law of 2014 – Act No. 2014-144 (HB 2): This Alabama Law Institute bill substantially amends Alabama’s LLC laws, provides for the formation and recognition of series LLCs, and updates the state’s conformity with the federal check-the-box regulations, effective January 1, 2015. Read more about the Alabama Limited Liability Company Law of 2014.
Suspension of Tax Collection When Cost Exceeds Tax Collected – Act No. 2014-331 (HB 97): This act requires the ADOR to suspend the collection of a tax or fee when the administrative cost of collecting the tax or fee exceeds the total amount of the tax or fee collected for the previous three fiscal years. However, the ADOR may not suspend the collection of certain taxes or fees, for example, a tax or fee mandated by federal law or regulation. In addition, the act requires the ADOR to notify any affected localities if it determines that the suspension of a tax or fee would reduce local revenues.
Set-off Debt Collection by Counties and Municipalities – Act No. 2014-321 (HB 82): This act allows counties and municipalities in Alabama to collect debts or money owed to them as a result of any administrative or judicial proceeding through set off of income tax refunds. The debt must be at least $25 and must be submitted to the ADOR through one of the following organizations: (1) the Association of County Commissions of Alabama (ACCA) or an entity established through the ACCA, or (2) the Alabama League of Municipalities (ALM) or an entity set up through ALM. The organization submitting the debt on behalf of any county or municipality may assess a $25 fee. The county or municipality must provide notice to the taxpayer whose refund is sought to be set off at the time the funds are transferred to the county or municipality by the Department. The taxpayer can contest the set-off in writing within 30 days of the mailing of the notice.