In preparation for the 2015 regular session of the Alabama Legislature, which begins Tuesday, March 3, one of Alabama’s most influential business and trade organizations, the 5,000-member Business Council of Alabama (BCA), has issued its 2015 tax legislative agenda. The Birmingham Business Alliance (BBA), the state’s largest chamber of commerce, has adopted many of the same tax agenda items, plus a few different ones.
The 2015 session will likely produce a tug-of-war between proposals to make Alabama’s statutory tax incentives package more competitive and proposals to address the significant budget shortfall, estimated to be in the range of $265 million. However, in order to restore funds that were previously diverted from the Education Trust Fund budget, the oil and gas trust fund, and the road construction fund, Governor Robert Bentley announced that he will call for a $700 million tax increase. Specifically, the Governor’s proposal includes enacting mandatory unitary combined reporting for corporate income taxes; repealing the sales and use credit for financial institutions; removing an exemption from utility gross receipts taxes that applied to municipal utilities; and doubling the state sales, use, and rental tax rates applicable to automobiles.
The proposals to revamp Alabama’s statutory tax incentives could include some or all of the following:
- Phase-out of the capital income tax credit and creation of an investment income tax credit equal to 1.5 percent of the qualified capital investment each year for 10 years, with the first three years of credits being transferable in order to raise additional equity for the project.
- Creation of a jobs credit, providing an annual cash rebate to the employer for up to 3 percent of its previous year’s gross payroll for new jobs directly created by the project.
- Enhanced investment tax credit and jobs tax credit for projects that employ veterans or are located in less developed counties.
- Creation of a new tax credit equal to 30 percent of the qualified investment in certain small-business and start-up companies.
- Creation of research and development income and financial institution excise tax credits modeled after the federal R&D credit, but with an enhanced credit for research conducted by Alabama-based academic or nonprofit research institutions.
- Expansion of sales, use, and property tax abatements to qualifying businesses that invest at least $2 million in refurbishing, upgrading, or placing a preexisting facility in Alabama back in service.
Summary of BCA State Tax Legislative Agenda
During the 2015 regular session, the BCA will actively work to:
- Streamline and simplify our sales and use tax system so that in-state and out-of-state retailers are on a level playing field.
- Implement a unified audit process to prevent businesses from being audited by the Alabama Department of Revenue (ADOR), and then by cities, counties and private auditing firms for the same sales, use or rental taxes and for the same tax periods.
- Enact legislation to provide for a Research and Development income tax credit parallel to the federal R&D credit, with an extra incentive if a qualified in-state research institution performs the research.
During the 2015 regular session, the BCA will support efforts to:
- Enact legislation that encourages investment in early stage, innovative, wealth-and-job-creating businesses that will remain headquartered, along with the majority of its workforce, in the State of Alabama.
- Enact legislation that expands opportunities for the New Markets Tax Credits, to increase the individual project cap (currently $10 million) and the aggregate cap (currently $20 million).
- Enact legislation that provides for the Alabama Departments of Revenue and Labor to establish a Voluntary Classification Settlement Program (VCSP) that parallels the Internal Revenue Service’s program regarding a prospective reclassification of certain independent contractors as employees.
- Encourage the ADOR and ADOL to issue joint guidance to the business community and nonprofit organizations to confirm that their worker classification test is consistent with the IRS 20-factor test, providing some helpful examples and definitions; and support efforts to assist the agencies in developing an audit program and appeal process that does not encourage their employees to skew the result toward finding “employee” status.
- Coordinate with other stakeholder organizations to develop proposals, possibly including a multistate compact among the Southeastern states, to increase compliance with Alabama’s sales and use tax laws by Internet and other out-of-state vendors.
- Establish a privilege for accountant work papers, self-critical analysis, and self-evaluation activities.
During the 2015 regular session, the BCA will oppose:
- Attempts to establish forced unitary combined reporting in Alabama.
- Any measure seeking to impose an increased tax burden that targets a specific industry or category of consumer goods or services.
- Any attempts by state taxing authorities to require disclosure, beyond those made in federal income tax returns, for uncertain tax positions or tax shelter items. Specifically, we oppose any state-specific disclosures.
During the 2015 regular session, the BCA will monitor efforts to:
- Enact anticipated legislation that will provide additional authority for economic development incentives for the recruitment and retention of business and industry, and which may include revenue proposals to close any deficits in the state budgets.
- Enact legislation that would reform the state-county business license statutes.
- Regulate and set minimum standards for individual tax preparers.
- Issue regulatory amendments related to the calculation and proper utilization of tax credits for tax payments to other states and foreign governments by Alabama residents.
- Enact legislation to provide for the carry-forward of capital credits on capital projects of less than $100 million of investment and that create fewer than 100 new jobs.
Summary of BBA State Tax Legislative Agenda
During the 2015 regular session, the BBA will actively support:
- Economic Development Incentives – The BBA supports economic development incentive legislation that will make Alabama more competitive with other states. Such legislation should reward the creation of jobs and the investment of capital, should incentivize innovative business clusters, and should encourage Alabama-based companies to refurbish and upgrade their existing operations.
- Historic Preservation Tax Credits – The BBA supports making permanent the tax credits for the rehabilitation, preservation, and redevelopment of residential or commercial historic structures to stimulate private investment as well as downtown and neighborhood revitalization and job creation.
- Extension of New Market Tax Credits – The BBA supports making permanent the tax credits available under the Alabama New Markets Development Act for certain investments in qualifying low-income communities.
During the 2015 regular session, the BBA will monitor:
- Research and Development Tax Credits – The BBA supports a Research and Development income tax credit parallel to the federal R&D credit, with an extra incentive if an Alabama-based research institution performs the research.
- Early -Stage Investment Tax Credit – The BBA supports legislation that would authorize an investment tax credit that encourages more early-stage company investments. The goal is to launch more companies capable of generating jobs, positively impacting the state’s economic growth.
- The Marketplace Fairness Act – The BBA supports state legislation that implements the pending federal legislation that would enable state and local governments to require the larger online vendors to collect sales tax from their customers in Alabama and remit the tax to the ADOR, as the agent for both the state and the local governments. In turn, those vendors would have an enhanced single point of filing, be subjected to only one audit, and could rely on tax rate information furnished monthly by the ADOR.
- Alabama Accountability Act – The BBA supports expanding the Alabama Accountability Act’s scholarship tax credit provisions to allow donation credits against the financial institution excise tax, insurance premium tax, and other tax streams paid by pass-through business entities.
If you have any questions regarding the above legislative proposals, please contact one of the Alabama members of the BABC SALT Practice Group.