The Alabama Legislature has passed a tax bill that would adopt single-sales-factor apportionment, eliminate the “throwback rule,” exempt federal COVID-19 tax relief from state taxation, and decouple from some business tax changes in the federal Tax Cuts and Jobs Act.
H.B. 170, sponsored by Rep. Danny Garrett (R), passed the Senate February 10 by a vote of 27 to 0 after passing the House February 4 on 94-0 vote. The bill was delivered to Gov. Kay Ivey (R) February 11 and was awaiting her signature as of press time. A spokesperson for Ivey previously said she would sign the bill without delay.
“This is one of the most important pieces of tax legislation that’s been enacted by our state Legislature in the past 20 years or more, and there will be winners and losers when it comes to the enactment of single- sales-factor apportionment and repeal of our throwback rule,” said Bruce Ely, partner at Bradley Arant Boult Cummings LLP.
The Council On State Taxation submitted testimony supporting provisions of the bill that would retroactively decouple the state from the global intangible low-taxed income provision of the TCJA, limit the application of the business interest expense limitation in IRC section 163(j) made by the TCJA, and eliminate the state’s throwback rule, which is used to prevent businesses from avoiding taxation on sales into states where they lack nexus for corporate income tax purposes.
In an email to the House Ways and Means Education Committee, Patrick Reynolds, senior tax counsel for COST, said the bill would “put Alabama in a better position as it seeks to retain and attract new businesses to the state and mitigate the unintended tax increase resulting from conformity to the TCJA.”
The bill would also move from three-factor apportionment with a double-weighted sales factor to single-sales-factor apportionment, and would create an elective workaround to the $10,000 cap on the federal state and local tax deduction for passthrough entities. The workaround would allow passthrough businesses to be taxed at the entity level at the highest marginal individual income tax rate.
It would also exempt from state tax economic impact payments, advance refunds, grants, and small business loans forgiven under the Paycheck Protection Program in the federal Coronavirus Aid, Relief, and Economic Security Act and the Consolidated Appropriations Act, 2021.