[co-author: Jack Pouchert, Law Clerk]

The influential Business Council of Alabama (BCA), founded in 1985, and the Birmingham Business Alliance (BBA), the state’s oldest and largest chamber of commerce, have each officially approved their 2020 legislative agendas. Both contain a number of tax and economic development/tax incentives-related proposals. The BCA serves nearly 750,000 Alabamians through its member companies and local chambers of commerce on various aspects affecting the economic growth of the state. The BBA serves as an advocate for economic development, public policy, workforce development, and image enhancement for the Birmingham region’s business community. Our law firm is proud that our partner, Chris Grissom, serves as vice chair of the BCA’s Tax & Fiscal Policy Committee, while our Birmingham office managing partner, Dawn Sharff, serves on the Executive Committee of the BBA.

The 2020 regular session, which convenes February 4, is shaping up to be quite a busy one, as evidenced by the numerous items of tax and incentives legislation featured on both the BCA’s and BBA’s agendas, as highlighted below. And the wildcard may be the legislative recommendations of the recently established bipartisan TCJA Task Force, co-chaired by Sen. Dan Roberts and Rep. Danny Garrett. We have yet to see those recommendations, although we understand the task force is looking beyond the narrow issues of whether to decouple from or conform to various aspects of the federal Tax Cuts and Jobs Act of 2017.

I. State Tax Items on the BCA and BBA Legislative Agendas

The BCA’s State and Local Tax and Tax Incentives Agenda

Senior Vice President of Governmental Affairs David Cole had this to say about the BCA’s goals for the upcoming 2020 legislative session:

“The Business Council of Alabama is excited about the opportunity to reauthorize, and potentially make improvements to, several proven tax credits that are vital to economic development in our state. The Alabama Jobs Act and the Growing Alabama Tax Credit are both set to expire in the coming year. It’s critical to our state’s job recruitment and economic expansion efforts in both urban and rural communities that we reauthorize both of these proven economic incentives in order for business and industry to continue to grow and flourish in Alabama.”

State Items Supported by the BCA:

The reauthorization and extension of:

• The Alabama Jobs Act, set to sunset on 12/31/2020
• The Growing Alabama Tax Credit, set to sunset on 9/30/2020
• The New Markets Tax Credit
• The Small Business Investment Company Tax Credit
• The Historic Structures Tax Credit, set to sunset in 2022

New or additional legislation addressing:

• Incentives for research and development institutions to perform qualified research in Alabama.
• Effective and accountable proposals for economic development incentives for recruitment and retention of business and industry.

Legislation dedicated to streamlining and simplifying our sales/use taxes:

• The Alabama and local sales and use tax system should put in-state and out-of-state retailers on a level playing field and increase compliance by internet and other out-of-state vendors.
• A unified audit process through the Alabama Department of Revenue (ADOR) to prevent multiple audits by the ADOR, cities, counties, and private auditing firms for the same tax periods.

State Items Opposed by the BCA:

• Unitary combined reporting in Alabama.
• Any attempts by state taxing authorities to require disclosure, beyond those required to be made in federal income tax returns, for uncertain tax positions or tax shelter items.
• The unilateral expansion of existing taxes and revenue measures through the regulatory process or agency interpretations of existing laws beyond the constitutional and statuary authority of the agency or regulatory body.

The BBA’s State and Local Tax and Tax Incentives Agenda

The Manager of Public Policy at the Birmingham Business Alliance, Elizabeth Paul, had this to say about the BBA’s goals for the upcoming 2020 legislative session:

“Streamlining our state and local sales tax system is critically important and part of the greater strategy of spurring growth and supporting our state’s budgets. The BBA wholeheartedly supports expanding certain essential tax credits and unifying our state and local sales tax system. Many states have done this with great success, and it is imperative that Alabama do so as well.

The BBA has historically supported the strategic use of tax credits, such as the state historic rehabilitation tax credits, the Alabama Jobs Act and the Alabama Incentives Modernization Act. In the last several years, the state legislature and Governor Ivey have done an impressive job of implementing tax credit programs, and those tax credits have been extraordinarily impactful, spurring growth, creating jobs and producing some of the best budgets in our state’s history. It is a strategy that should, and must, continue.”

State Items Supported by the BBA:

Growing Alabama Tax Credit

The Growing Alabama Tax Credit provides funding for local economic development organizations to develop building sites to attract business or industry to that area. The program is set to sunset on September 30, 2020. The BBA supports the continuation and further enhancement of the program.

Historic Preservation Tax Credit

Re-established for tax years 2018 through 2022, the Alabama Historic Tax Credit provides a refundable tax credit up to 25% of eligible costs for the substantial rehabilitation of historic properties, especially in aging city and town centers. The BBA encourages the state legislature to make permanent the Historic Tax Credit to stimulate private investment, downtown and neighborhood revitalization, and job creation.

Alabama New Market Tax Credit

The BBA supports making permanent the Alabama New Markets Development Act for certain investments in qualifying low-income communities.

Streamlining Sales Tax Collection and Audit Rules

One of the BBA’s highest priority items is the support of state legislation that would require more and larger online vendors to remit collected sales tax to the Alabama Department of Revenue (ADOR) as the agent for both the state and local governments. This would allow the vendors to save time by utilizing a single point of filing, be subjected to only one audit, and rely on tax information furnished monthly by the ADOR.

Additional Research and Development Tax Credit

In addition to the Research and Development Grant Program that was passed in the 2019 session (SB 78), the BBA supports legislation that would add an income tax credit parallel to the federal R&D credit.

Insurance Premium Tax Credits

The Insurance Premium Tax Credits Program offers incentives to insurance companies operating in the state to invest in Alabama and create jobs. The BBA supports the continuation of insurance premium tax credits at the current level, which offset insurance premium taxes paid to the Alabama General Fund.

II. Federal Tax Items on the BCA and BBA Legislative Agendas

Federal Items Supported by the BCA:

The BCA will monitor any tax reform efforts in Congress and the impact that any such legislation would have on the Alabama income tax liability of its members.

Federal Items Supported by the BBA:

Federal Historic Tax Credit

The Federal Historic Tax Credit (HTC) program was enacted in 2002 and provides a 20% federal tax credit to property owners who undertake substantial rehabilitation of an income-producing building certified as a “certified historic structure.” Since its enactment, statewide development under the program totals more than $463 million and helped create over 6,400 jobs. The Birmingham area saw over 60 HTC projects alone. The BBA opposes eliminating or decreasing the credit.

New Market Tax Credits

The New Market Tax Credit (NMTC) program attracts private investment to distressed communities by providing tax credits to those that invest in community development and economic growth in designated communities. The program has been successful in the Birmingham area, and the BBA opposes eliminating the program.

Short Line Tax Credit

The BBA supports bringing back and making permanent the Short Line Tax Credit that expired on December 31, 2017, to benefit the smaller freight railroads that serve the economic growth of the Birmingham area. The credit assisted smaller freight railroads with upgrading their lines to handle larger car shipments across the United States.

Promoting Uniform Sales Tax Collection Rules Post-Wayfair

The BBA supports the bipartisan Online Sales Simplicity and Small Business Relief Act of 2019 (H.R. 1933) or similar legislation, and the principles requiring the states to impose a uniform minimum dollar volume threshold before an out-of-state vendor is required to collect that state’s (and its local governments’) sales tax from customers, a single point of filing and audit/appeal, and free filing software offered by the states together with an indemnity if the vendor relies on that software but it’s later proved to be incorrect or out of date.

Public Investment in Opportunity Zones

The White House Opportunity and Revitalization Council is working to expand federal resources and support for Opportunity Zone projects across the country, and BBA supports any federal efforts to that effect.

Workforce Developments

The BBA supports the Workforce Development Tax Credit Act of 2017 (H.R. 1190), which would incentivize companies to train and hire apprentices for tax credits.

The BBA also supports the bipartisan Mobile Workforce State Income Tax Simplification Act (S.604). This bill prohibits the wages or other remuneration earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than the state of the employee’s residence and the state within which the employee is present and performing employment duties for more than 30 days during the calendar year.

Health Insurer Tax Repeal

The BBA supports H.R. 928 and S. 183, which would repeal the health insurance premium tax that was added to the Affordable Care Act. The tax has had a negative impact on insurance rates for small businesses since its implementation.

The authors thank David Cole and Elizabeth Paul for their helpful contributions to this newsletter.