Pending Alabama Tax Legislation (2017 Regular Session)
State and Local Tax Alert: Alabama Edition
The House and Senate have each met a total of six legislative days thus far. There are therefore 24 legislative days remaining in the 2017 Regular Session. The House will reconvene on Tuesday, February 28 at 1:00 p.m. The Senate will reconvene on Tuesday at 2:00 p.m.
As the 2017 regular session of the Alabama Legislature gets into full swing, we continue to monitor the flurry of bills that have already been introduced, with particular focus on bills affecting both individual and business taxpayers on a statewide basis. To provide our readers with some insight into potential developments taking shape in Montgomery, we have briefly summarized the most pertinent tax-related legislation introduced to date:
HOUSE OF REPRESENTATIVES:
H.B. 23 - Introduced by Rep. Greer, et al., this bill alters the state tax treatment of income received as a benefit from defined contribution deferred compensation plans. If enacted, H.B. 23 would exempt 20 percent of any defined contribution compensation income from Alabama income tax for the year 2018, with such exemption rising by 20 percent each year thereafter until the year 2022, when 90 percent of such income shall be exempt from income tax annually. The term “defined contribution deferred compensation plan” is not defined.
H.B. 26 - Introduced by Rep. Givan, this bill proposes a state-level minimum wage to be set at $10 per hour for workers paid on an hourly basis. The bill also establishes a floor for gratuity-based compensation paid to employees, which prevents hourly compensation from falling below 30 percent of the federal or Alabama hourly wage, whichever is greater. For the gratuity-based compensation scale to apply, employees must receive at least 70 percent of compensation in the form of tips. Should a gratuity-based employee’s wages, after taking into account both tips received and pay received directly from an employer, fall below the higher of the state or federal hourly wage, the bill requires the employer to provide the difference in payment. If passed, H.B. 26 would go into effect immediately and be re-adjusted for inflation beginning in the year 2020, with triennial adjustments taking place thereafter.
H.B. 44 - Introduced by Rep. Knight, this bill exempts sales of food from state (only) sales and use taxes, with an effective date of September 1, 2017.
H.B. 46 - Introduced by Rep. Scott, this bill seeks to: (1) require tax preparers located within the state to provide federal preparer identification numbers on all Alabama tax returns prepared; (2) synchronize the Alabama Business Privilege tax return due date with the corresponding date for federal returns, while linking the return date for financial institutions to the same date for excise tax returns; and (3) renames the position of Taxpayer Advocate to “Taxpayer Assistance Officer” and provides additional powers.
H.B. 58 - Introduced by Rep. Johnson, this bill exempts sales of prescriptions drugs from municipal business license taxes that are based on gross receipts.
H.B. 75 - Introduced by Rep. Johnson, this bill establishes the “Wholesale to Retail Accountability Program.” The main purpose of the program would be to standardize the informational reporting of licensed beer and wine distributors, as well as sellers of tobacco products, making sales within the state for retail purposes on which sales or use tax was not collected at the time the sales were made, to the Alabama Department of Revenue.
H.B. 83 - Introduced by Rep. Scott, this bill authorizes the ADOR to make monthly distributions of tax collected through the Simplified Seller’s Use Tax Program to counties and municipalities. Additionally, the bill removes the six-month participation requirement for participating sellers before they can establish certain types of physical presences within the state to be deemed ineligible to participate in the program. This bill also provides the Department with the authority to require sellers to provide reporting and other information to the Department and their customers if they do not collect sales tax.
H.B. 130 - Introduced by Rep. Collins, et al., this bill amends existing law to codify the United Way, its supporting agencies, and other united appeal funds possessing a certificate of exemption as of a specified date, as exempt from all state, local, and municipal taxes, including privilege and license fees.
H.B. 159 - Introduced by Rep. Todd, this bill increases the recording fee for mortgages, deeds of trust, contracts of conditional sale, or other similar instruments from $0.15 per $100 of principal value, to $0.30 per $100 of principal value. Any additional revenue generated by the fee increase would be diverted to both the Alabama Housing Trust Fund and the Alabama Homebuyer’s Initiative.
H.B. 179 - Introduced by Rep. Whorton (I), et al., this bill modifies Section 11-89-16 of the Code of Alabama (1975) to specifically define a water district as exempt from taxation.
H.B. 181 - Introduced by Rep. Ledbetter, et al., this bill exempts small business owners from paying Alabama property tax on tangible business personal property valued at $20,000 or less in total.
H.B. 219 - Introduced by Rep. Johnson (K), this bill proposes a change to Section 40-26-1 of the Code of Alabama (1975) to expand the existing 5 percent lodgings tax to encompass any rental to a person or company a “meeting room,” “sleeping or housekeeping quarters,” or such “other accommodations which are rented or furnished.” This bill would effectively reinstate a portion of the Department’s regulation that was invalidated by the Tax Tribunal in a dispute regarding a wedding chapel and related event space.
H.B. 223 - Introduced by Rep. Rogers and Moore, this bill amends Section 65 of the Constitution of Alabama of 1901 to establish a lottery within the state and would form the Alabama Lottery Corporation. The bill permits both table and electronic gaming at any of the four licensed racetracks within Alabama. The bill also authorizes the Governor to negotiate a compact for gaming with the Poarch Band of Creek Indians.
H.B. 238 - Introduced by Rep. Greer, this bill creates an exemption from Alabama sales and use tax on the gross proceeds of gold, silver, and platinum bullion and coin sales made within the state.
H.B. 263 - Introduced by Rep. Johnson (K), et al., this bill codifies a prior Department rule that included both loans and credit card receivables in the property factor for the financial institution excise tax apportionment formula. If enacted, this bill requires the Department to revise the FIET apportionment rule to use the same sourcing methods for receipts from loans and credit card receivables to apportion the value of loans and credit card receivables in the taxpayer’s property factor. The bill is applicable for all tax years beginning on or after January 1, 2017.
H.B. 302: Introduced by Rep. Wadsworth, this proposed constitutional amendment would if approved in a referendum vote reduce the corporate income tax rate to 6 percent from the current 6.5 percent.
H.B. 313 - Introduced by Rep. Beech, et al., this bill clarifies several provisions applicable to Alabama’s forest products severance and processors taxes. Notable changes implemented by the bill include clarifying that sawmills also have the option to report severance tax using weight, expanding the types of concentration yards responsible for remitting the tax and clarifying that pulpwood chips produced by sawmills and other manufacturers shall not be subject to tax twice if the original user already paid severance tax on the weight of the logs. In order to encourage renewable energy, a deduction is also provided for manufacturers who utilize wood residue as an energy source in the forest product manufacturing process.
S.B. 3 - Introduced by Sen. Dial, et al., this bill would provide for a one-time lump-sum addition to the monthly allowances of all retirees and beneficiaries receiving monthly benefits from the Teachers’ Retirement System of Alabama. The amount of the lump-sum benefit would be $2 per month for each year of service or $300, whichever is greater. As structured, the benefit applies only to retirees or beneficiaries of retirees who retired prior to October 1, 2016.
S.B. 22 - Introduced by Sen. Dial, this bill extends the term of the state income tax credit provided to qualifying physicians residing and practicing in rural communities from five to 10 years. The bill also extends the income tax credit to dentists who reside and practice in small rural communities within the state.
S.B. 66 - Introduced by Sen. Dial, this bill provides qualifying small businesses with a tax credit for hiring unemployed veterans. The bill seeks to amend existing law by removing the two-year window in which small businesses must hire veterans after discharge from service to qualify for the credit.
S.B. 67 - Introduced by Sen. Coleman-Madison, et al., this bill would repeal Alabama’s consolidated filing election for corporate income tax purposes and instead require combined reporting for business entities that are involved in a “unitary” business. This proposal is essentially identical to similar proposals introduced during the last three sessions and despite the purported label of a “combined report,” the bill would also limit credits and net operating losses to the member of the group that incurred the attribute. Broad discretion is granted to the Department.
S.B. 86 - Introduced by Sen. Pittman, this is a companion bill to H.B. 83, as outlined above.
S.B. 104 - Introduced by Sen. Chambliss, this is a companion bill to H.B. 75, as outlined above.
S.B. 109 - Introduced by Sen. Sanford, this bill would cap the eligible seller discount at $400 per month for vendors participating in the Simplified Seller’s Use Tax Remittance Act, similar to the cap applicable to retailers that collect and remit the regular sales tax.
S.B. 120 - Introduced by Sen. Ward, this bill comes in the wake of last year’s landmark Alabama Court of Civil Appeals ruling in Ala. Dep’t of Revenue v. Omni Studio, LLC. The bill purports to codify the sales tax exemptions for certain providers of professional services. Additionally, the bill prohibits the Alabama Department of Revenue and localities from seeking payment for uncollected sales tax on sales of photographs or commissioned portraits prior to October 1, 2017, while also preventing any refund claims prior to this date. Going forward, the bill removes services provided by photographers and commissioned portrait artists from the sales tax exemption.
S.B. 123 - Introduced by Sen. Marsh, et al., this bill amends the Alabama Accountability Act by providing income tax credits to participating trusts and estates. Additionally, the bill creates a credit against utility gross receipts tax liability for donations made to scholarship granting organizations established under the Act. The bill also increases the cap on income tax credits for donations to SGOs.
S.B. 125 - Introduced by Sen. Melson, this is a companion bill to H.B. 219, as outlined above.
S.B. 128 - Introduced by Sen. Melson, this is a companion bill to H.B. 46, as outlined above.
S.B. 181- Introduced by Sen. Figures, et al., this is a companion bill to H.B. 130, as outlined above.
S.B. 232: Introduced by Sen. Sanders, this proposed constitutional amendment would if approved in a referendum vote (a) limit the deduction for federal income taxes paid by residents based on the level of adjusted gross income and filing status, and (b) exempt the sales of “food and over-the-counter drugs” from state (only) sales tax, effective January 1, 2018.
Additionally, bills to reinstate the Alabama Historic Tax Credit and taxing certain sales of digital goods and services are expected to be introduced soon. Should you have any questions about these developments or other related matters, please feel free to contact one of the members of Bradley’s State and Local Tax Practice Group.