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Ala. Senate Passes Fed. Virus Aid Tax Break, Credit Renewal

By Abraham Gross · Feb 11, 2021, 5:49 PM EST

Alabama would exempt federal aid for the novel coronavirus pandemic from state income taxes and renew a tax credit program to provide incentives for economic development under two bills passed by the state Senate and sent to the governor.

The Senate overwhelmingly voted Wednesday to pass H.B. 170, which would exempt funds received from the Coronavirus Aid, Relief and Economic Security Act , and H.B. 192, which would reinstate an expired tax credit for cash contributions to local economic development organizations. H.B. 170 passed by a 27-0 vote with eight not voting, while H.B. 192 passed 28-0 with seven not voting.

The bill will go to Republican Gov. Kay Ivey for consideration. Ivey called on the Legislature to prioritize the measures, and Gina Maiola, press secretary for Ivey, previously told Law360 the governor supported the bills and would "sign without delay."

Maiola referred Law360 to Ivey's tweets on Wednesday evening praising the bill sponsors "for the significant action today to ensure we can recruit & retain good-paying jobs on behalf of the people of Alabama" and "exempting our citizens of taxes on #CARESAct funding allocated to assist them during the pandemic."

The House voted overwhelmingly in favor of the bills on Feb. 4.

H.B. 192, sponsored by Rep. Bill Poole, R-Tuscaloosa, would reinstate an expired tax credit for cash contributions to local economic development organizations and double the annual credit cap to $20 million, according to a fiscal note.

The bill would also create a new jobs credit against the utility taxes for underrepresented businesses and some medical companies and modify the requirements and limits of other credits. The bill defines "underrepresented businesses" as those majority-owned by underrepresented people, which means women or African Americans.

H.B. 170, sponsored by Rep. Danny Garrett, R-Trussville, would provide a state income tax exclusion for federal tax credits, subsidies, grants, loans, loan forgiveness and other aid from federal pandemic relief legislation.

The bill also includes provisions that would decouple the state from the federal treatment of global intangible low-taxed income, adopt a single-sales-factor apportionment and create a state and local taxes cap workaround.

Under the bill, pass-through entities could elect to pay income tax at the entity level, an effort to prevent the tax from flowing through to owners, who would be subject to the $10,000 federal deduction cap for state and local taxes.

The measure would also exclude qualified consolidated groups from the business interest deduction limit under Section 163(j) of the Internal Revenue Code and replace the current income apportionment formula — which uses property, payroll and sales factors — with a single sales factor.

Garrett put forward legislation with many of the same policies last year to implement the recommendations of a task force he co-chaired, which was commissioned to study the effects of the 2017 Tax Cuts and Jobs Act . None of the bills advanced beyond the House.

Alabama is one of a handful of states that haven't fully decoupled from GILTI, and it does not offer a full dividends-received deduction. GILTI, a provision of the TCJA, was meant to target income earned from intangible assets — such as patents or other intellectual property — in foreign jurisdictions with low tax rates.

Garrett told Law360 that H.B. 170 will incorporate all of the major conformity and TCJA-related changes recommended by the task force to improve business competitiveness and to draw new businesses to the state, in addition to offering relief for federal COVID-19 aid.

"The most significant change for Alabama corporate taxpayers was the change in Alabama apportionment and throwback rules," Garrett said. "We are very pleased to be able to incorporate other changes to the Alabama tax code that will make our businesses more competitive."

Bruce Ely, a partner at Bradley Arant Boult Cummings LLP who served as an adviser to the task force, said in an email to Law360 that federal COVID-19 aid relief, decoupling retroactively from GILTI and enacting a SALT cap workaround would support multistate businesses.

"Obviously, there will be winners and losers here," Ely said about the transition to a single sales factor and the repeal of the state's throwback rule.

The offices of Poole and leadership for the majority and minority in the Senate did not immediately respond to requests for comment on Thursday.

--Additional reporting by Paul Williams, Natalie Olivo, Maria Koklanaris and Daniel Tay. Editing by Vincent Sherry. 

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