Alabama Legislature Signals Reexamination of Tax Incentives and Exemptions

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During the recently ended legislative special session, Senate President Pro Tem, Senator Del Marsh (R-Anniston), introduced and quickly passed Senate Resolution 20 that establishes an exploratory committee aimed at evaluating many aspects of Alabama’s tax system. It cites the need to provide relief to Alabama families from various federal “regulatory and tax burdens” imposed in recent years by establishing an “Interim State Tax Relief Committee” and SR 20 charges the interim committee to “study all facets of the current tax system in the state.”

In the meantime, House Joint Resolution 62 was approved by both the House and Senate as of September 6. HJR 62 tracks SR 20 in part by proposing a Joint Legislative Task Force on Budget Reform to examine certain aspects of Alabama’s tax code in an effort to relieve the state’s recurring budget shortfalls. Senator Marsh has advised the media that the two study groups will be “merged." In a recent interview with the Birmingham Business Journal, Sen. Marsh stated: “We are approaching this as though we were pressing a reset button, and eliminating all credits and incentives, and see what it would look like, and start from there.”

HJR 62 differs from SR 20 by focusing more on the elements affecting Alabama’s budgets, including the apparent goals of implementing biennial budgeting for both the General Fund and the Education Trust Fund, greater performance accountability for state government departments, and the unearmarking of revenue accruing to the state. What caught the attention of many in the business and economic development communities is the language in HJR 62 establishing a review process for all existing state tax credits, deductions, and exemptions, citing the “loss of approximately $4.5 billion in revenue to our state budgets each year.” The HJR provides little detail as to the mechanism(s) that may be used to examine existing tax credits, deductions, and exemptions, except to state that the review will coincide with the creation of “a policy to ensure that future tax credits effectively provide economic gain to the state.”

Both resolutions adopt a deadline for their respective committees to report findings no later than the fifth day of the 2017 regular session, which begins February 14. 

The Alabama legislature is not alone in turning its focus to its tax code in hopes of finding additional and stable revenue sources to plug perennial budget shortfalls. Recently, the legislatures of Louisiana, Mississippi, South Carolina, Georgia and West Virginia have established similar committees to examine possible paths to reforming their respective tax codes.