Three Important Alabama Regulatory Developments

State & Local Tax Alert: Alabama Edition

Client Alert

Last month, the ADOR proposed a new rule, Rule 810-3-35-.01, in order to simplify the federal income tax deduction available to corporations doing business in Alabama. The ADOR proposed to repeal the current corporate federal income tax deduction rule, which allows the net federal income tax to be deducted in the year paid or accrued, but deems the federal alternative minimum tax (AMT) as a prepayment and not deductible in computing Alabama taxable income. In order to simplify the calculation, the proposed rule would allow the AMT to be deducted and would provide one method to allocate the deduction (including AMT) among members of a federal consolidated group.

With respect to members of a federal consolidated group, the proposed rule requires that federal income taxes paid or accrued must be apportioned only among the members of the group that individually report positive federal taxable income, using what is commonly called the “(a)(1)” option. Initially, a public hearing on the proposed rule was scheduled for April 7. However, due in part to a request by the Alabama Society of CPAs and its president, Jeannine Birmingham, the ADOR withdrew and republished this rule earlier this week in order to allow additional time for taxpayers and tax practitioners to review and comment on the proposal. A public hearing should be scheduled for some time in June.

In December, the ADOR proposed numerous changes to its apportionment rules for corporate income taxpayers, with the stated intention of adopting “recommended amendments to the [Multistate Tax Commission (“MTC”)] Rules approved by the MTC Executive Committee” (Prop. Ala. Admin. Code r. 810-27-1). The ADOR held a public hearing on the proposed rules on February 11 and received written comments from COST, the Alabama Society of CPAs and our firm (a detailed summary of these comments is available here). The ADOR is working on technical changes to the proposed rule, including: (1) eliminating the requirement that a taxpayer seeking to use alternative apportionment file its request at least six months prior to the due date of the return, and (2) explicitly adopting the MTC special industry rules, as modified for Alabama’s version of the Multistate Tax Compact.

Finally, the effective date of the proposed apportionment rule dealing with the financial institution excise tax (FIET) has been postponed by a year (i.e., TYBA 12/31/16) following a March 23 hearing before the Alabama Legislature’s Legislative Council (Rule 810-9-1-.05). The Council is chaired by influential Sen. Paul Sanford (R-Huntsville/Madison). Chairman Sanford and other members of the Council urged the Alabama Bankers Association, the financial institutions adversely affected by the rule, and the ADOR to work toward a compromise solution by the 2017 regular session. There is legislation pending, HB 451 (Rep. Oliver Robinson, D-Birmingham), that would delete the current mandate requiring the ADOR to automatically issue administrative rules that closely parallel the counterpart MTC model apportionment provisions, regardless of how those current or future rules would impact the Alabama banking industry or how they interact with the state’s FIET statute.