Recent Alabama Tax Legislative Developments

State & Local Tax Alert

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Many predicted that the 2018 regular session of the Alabama Legislature would be less eventful than in years past since members of the House of Representatives and Senate are up for re-election this year, and most lawmakers have been focusing their attention on their upcoming fall campaigns. 

Thus far, however, the 2018 session has already produced and is expected to produce a surprising number of significant tax legislative developments, including the Alabama Tax Delinquency Amnesty Act of 2018 and an income tax break for low-to-middle income families that’s been touted by the Republicans as the “largest tax cut for Alabamians since 2006.”

This SALT Alert summarizes several of these noteworthy legislative developments affecting Alabama taxpayers with respect to income and transactional taxes. There are several more acts in the pipeline, and those will be featured in our next SALT Alert. Most expect the legislature to adjourn by March 29.

Alabama Tax Delinquency Amnesty Act of 2018 – Act 2018-153 (H.B. 137)

The Alabama Tax Delinquency Amnesty Act of 2018 requires the Alabama Department of Revenue (ADOR) to establish a short-term tax amnesty program, similar to the previous program. For three months—July 1, 2018 through September 30, 2018—taxpayers will have the opportunity to apply for amnesty for most taxes administered by the ADOR, except for motor fuel, motor vehicle and property taxes. Taxes eligible for the amnesty include: (1) taxes due prior to January 1, 2017 and (2) taxes due for tax periods that began before January 1, 2017. If the application is approved, the ADOR will waive all penalties and interest associated with tax periods for which the amnesty was granted.

Taxpayers who have been contacted by the ADOR in the past two years concerning the tax type at issue, as well as those who are a subject of a criminal investigation or litigation, are ineligible to apply for amnesty for that particular tax. Taxpayers granted amnesty must submit all applicable tax returns, supporting documentation, and full payment of the tax by November 15, 2018.  We await published guidance from the ADOR.

Income Tax Standard Deduction Expanded – Act 2018-180 (S.B. 76):  

This act, sponsored by Senate President Pro Tem Del Marsh (R), is touted as the largest tax cut for Alabamians since 2006. It expands the adjusted gross income (AGI) range allowable for the maximum $7,500 standard deduction for Alabama individual income tax purposes. For tax years beginning after December 31, 2018, the AGI threshold for claiming the maximum standard deduction would increase from $20,000 to $23,000 for taxpayers filing as single, head of family, or married filing jointly, and from $10,000 to $10,500 for married taxpayers filing separately. Senator Marsh estimates the amendments will cost the state $4 million to $6 million annually but provide relief for approximately 182,000 taxpayers.

Amendments Relating to the Administration and Collection of County/Municipal Taxes – Act 2018-150 (S.B. 111):

This act amends several provisions concerning the ADOR and the administration and collection of local sales, use, rental, and lodgings taxes. Effective March 1, 2019, any taxpayer collecting local sales, use, rental, or lodgings tax in compliance with tax rates published by the ADOR will be relieved from liability for the under-collection of local taxes due to lack of proper notification of a rate increase by the county or municipality at issue. Liability relief, however, is only applicable for up to one year from the date the incorrect rate was published. Currently, certain errant taxpayers are entitled to an abatement of penalties on the assessment. It also requires local taxing jurisdictions to notify the ADOR at least 60 days in advance of implementing a tax change instead of the current 30-day requirement.

This act also prohibits the ADOR from charging for certain services related to taxes authorized to be filed under the ADOR’s “ONE SPOT” system. The amended provision states that the ADOR cannot charge a fee to a municipality for the cost of filing, payment processing, and/or remittance services in connection with any tax authorized to be filed on its “ONE SPOT” website. The act also lowers the cap on costs the ADOR can charge to a county for collecting and administering the county’s taxes under Ala. Code §§ 11-51-180 through -185 from 5 percent to 2 percent of the amount collected.

Single-Request Tax Refund Bill Replaces Previous Joint Refund Petition Requirement – Act 2018-180 (S.B. 63):

This act repeals the state’s current requirement that refund petitions for certain consumer taxes must be jointly filed and establishes that single-petitioner refund requests are permissible. Specifically, effective March 8, 2018, refund petitions for sales, use, lodgings, and utility tax overpayments can be filed by: (1) the consumer/purchaser who paid the tax directly to the taxpayer; (2) the taxpayer, if the taxpayer remitted in excess of the tax due but failed to collect the tax from the consumer/purchaser; or (3) the taxpayer, if the consumer/purchaser paid the tax directly to the taxpayer, and the refund is not paid to the taxpayer until after the tax has been credited or repaid to the consumer/purchaser. In addition, this act also provides that the ADOR has the authority to establish procedures for offsetting any state use tax liability against any refund otherwise due, as well as refund amounts less than $25.

Veterans Employment Act Enhances Tax Credits for Hiring Veterans - Act 2018-194 (H.B. 83):

This act enhances the tax credits available for hiring veterans originally established by the Heroes for Hire Act of 2012 by doubling the available credit and expanding the classes of veterans that are eligible for the credit. Specifically, the act provides a non-refundable $2,000 income tax or financial institution excise tax (FIET) credit to employers for each qualified unemployed veteran or combat veteran hired for a full-time position that pays at least $14 per hour.

Veterans who were residents of Alabama at the time of entry into military service, received an honorable or general discharge at any time preceding the hiring date (thus eliminating the former "within two years of discharge" hiring requirement), and receive the proper unemployment certification are eligible under the act. In addition, veterans who served in combat zones and were residents of Alabama at the time of their service also qualify, regardless of their employment status. 

Generally, the employer must have less than 50 employees and must have a net increase in employment from the prior year in order to be eligible for the credit. The credits may be claimed in the taxable year in which the qualified veteran completes 12 months of consecutive employment. However, the veterans credit may also be combined with the credit available under the Small Business and Agribusiness Jobs Act of 2016, which applies to employers with less than 75 employees during the tax year in which the credit is claimed.

Finally, the act preserves the $2,000 non-refundable income tax credit for “recently deployed” qualified veterans (i.e., honorable or general discharge within previous two years) who start their own businesses. The credit is limited to the start-up expenses of the business, including expenses incurred developing a business plan, legal and accounting fees, advertising expenses, etc. The veteran is required to be at least a 50 percent owner of the entity, and the business must show a net profit of at least $3,000 to qualify.

Please contact any member of the firm’s SALT Practice Team in the Birmingham, Montgomery or Huntsville, Alabama offices for more information. Thanks to our law clerk, Matthew H. Hambrick, for his assistance in preparing this SALT Alert.