February 11, 2021

On February 10, 2021, the Alabama Senate passed key legislation exempting federal COVID-related relief from state taxation, implementing corporate tax reform, and establishing an alternative tax for electing pass-through business entities. The legislation was passed by the Senate 27-0.

Below is a concise summary:

The Alabama Stimulus Freedom Act of 2021

The following federal COVID-related relief measures are now exempt or excluded from state individual income taxation and state financial institution excise taxation:

• Stimulus, advance refund payments, and “other similar COVID-related relief measures for individuals enacted by Congress.”
• Loan forgiveness, which would otherwise be cancellation of indebtedness income, under the Paycheck Protection Program, and other SBA-backed loans or subsidies   
  • To the extent that expenses incurred are deductible for federal income tax purposes, those expenses are now also deductible for state tax purposes
• Amounts received from a Qualified Emergency Federal Aid Grant
• Certain student loan payments made by employers
• Certain disaster relief payments, including EIDL grants

The Alabama Business Competitiveness Act

This Act deals primarily with corporate tax reform and economic development:

• De-coupling Alabama from certain provisions of the Federal Tax Cuts and Jobs Act of 2017 relating to taxation of certain economic development incentives, and the Global Intangible Low-Taxed Income (GILTI) regime
• Changing apportionment factor for most corporate income taxpayers from a three-factor apportionment formula to a single sales factor formula

The Alabama Electing Pass-Through Entity Act

• Partnerships, S corporations, and LLCs taxed as partnerships may now elect to be taxed at the entity level instead of being taxed at the owner, shareholder, or member level.

This article highlights certain provisions selected from the Acts. It is not a fully comprehensive summary discussing every piece of the new legislation.

This Insight is intended only to provide an overview of the matters addressed herein and does not constitute legal advice.  If you have any questions regarding a specific issue, please seek appropriate legal counsel.