The Alabama Legislature adjourned near midnight on May 20, closing a session that saw lawmakers grant final passage of the two operating budgets and of amendments to the controversial Alabama Accountability Act. With respect to the latter, the House and Senate overrode Governor Robert Bentley’s veto and executive amendment that would have delayed implementation of the tuition tax credits for two years.
While several important tax proposals crossed the finish line during the last days of the session, including HB 140 (Historic Structures Tax Credit) and HB 419 (Government Contractor Exemption), there was one notable and very disappointing failure: HB 264, the Alabama Taxpayers’ Bill of Rights II/Alabama Tax Appeals Commission Act, was never placed on the special order calendar by the Senate leadership and therefore the full Senate never voted on it.
If you have any questions about a particular bill discussed in this column, you should review the full text. A detailed listing of the bill’s sponsors, along with its fiscal note (i.e., how much the bill is projected to raise, save or cost for the state), and its progress through each house can be found on the Legislature’s official website, called ALISON.
ALABAMA TAXPAYERS’ BILL OF RIGHTS II
HB 264 – Alabama Taxpayers’ Bill of Rights II, would have created an independent tax tribunal, known as the Alabama Tax Appeals Commission (ATAC), by abolishing the current Administrative Law Division and transferring both its personnel (including its only Administrative Law Judge) and its equipment to a newly formed state agency under the executive branch. This bill also contained several important changes and updates to the Alabama Taxpayers’ Bill of Rights Act of 1992, such as generally extending the time period for filing an appeal or petition for review to 60 days from the previous 30 and expanding the scope of Alabama’s “innocent spouse” defense to conform to the more favorable federal law.
The Business Council of Alabama, the Alabama Retail Association, the Alabama State Bar, and the Alabama Society of CPAs (ASCPA) strongly supported this bill and the American Institute of CPAs (AICPA) endorsed it as well. Having easily passed out of the House with a vote of 96 to 2, HB 264 then passed unanimously out of the Senate Fiscal Responsibility and Accountability Committee several weeks ago. But it never received a vote by the full Senate, despite assurances from the Governor’s office that he would sign the bill in its present form if approved by the Senate.
INCOME TAX AND BUSINESS PRIVILEGE TAX PROPOSALS
Act 2013-08 (HJR 17) – Extension of Capital Credits / Mining Incentives: Alabama’s capital income tax credit and the statutory incentives for coal mining projects (capital credits and abatements under the Tax Incentive Reform Act of 1992, or TIRA abatements) were scheduled to expire on December 31, 2013, and March 1, 2014, respectively, unless the legislature adopted a joint resolution to extend these incentives. Act 2013-08 extended both the capital credits and the coal mining statutory incentives until December 31, 2018, but did not modify any of the existing qualification requirements or limitations applicable to these statutory incentives. HJR 17 was passed by both the House and Senate and was signed into law by Governor Bentley as Act 2013-08, thus continuing the availability of these important tax incentives to qualifying projects for another five-year period.
Act 2013-241 (HB 140) – Tax Credit for Preservation of Historic Structures: This proposal provides a credit against the tax liability of the owner or its partners/members for the rehabilitation, preservation, and development of certain historic structures. The tax credit for the taxable year in which the certified rehabilitation is placed in service shall be equal to 25 percent of the qualified rehabilitation expenditures for certified historic structures, and shall be 10 percent of the qualified rehabilitation expenditures for qualified pre-1936 nonhistoric structures. The credit can be applied against the state portion of the financial institution excise tax (FIET) and against the income tax. The annual aggregate amount of any tax credits that may be reserved by the Alabama Historical Commission is $20 million, and the maximum credit for any commercial project is $5 million. The credits may not be applied until the 2014 tax year and the act is scheduled to sunset three years from the date of enactment.
Act 2013-34 (SB 49) – Technical Correction to Entertainment Industry Incentive Act of 2009: A technical correction to the Entertainment Industry Incentive Act of 2009 as amended by Act 2012-212, this act clarifies that qualifying expenses associated with certified productions can be rebated to the qualifying production companies, retroactively effective to June 14, 2011.
Act 2013-64 (HB 84) – Alabama Accountability Act: This landmark legislation establishes an income tax credit for individual and corporate contributions to organizations that provide educational scholarships to qualifying schools. It also establishes a refundable income tax credit for certain families that transfer their children to a nonfailing public school or a private school. Both houses rejected Governor Bentley’s request to delay implementation of the tax credits for two years. The Alabama Education Association (AEA) has filed a second legal challenge to the act.
Act 2013-66 (SB 204) – Agricultural Irrigation Systems Tax Credit: Last year, Act 2012-391 established an income tax deduction for Alabama taxpayers under Section 179 of the Internal Revenue Code for qualifying irrigation systems. It also provided for an income tax credit of 20 percent of the cost of the purchase and installation related to irrigation systems or the development of irrigation reservoirs and water wells, as well as certain conversion costs.
This newly signed act decreases the annual flow rate of rivers or streams excepted from the qualified reservoir requirement to 8,000 cubic feet per second from the previous 10,000 cubic feet per second. The act also allows the tax credit to be carried forward to each of the five years following the taxable year that the qualified irrigation system or reservoir is placed in service. In addition, the act clarifies that shareholders of certain business entities, such as S corporations, receive a pro rata share of the credit earned by the pass-through entity.
SALES/USE TAX PROPOSALS
Act 2013-205 (HB 419) – Government Contractor Exemption: HB 419 provides for the Alabama Department of Revenue (ADOR) to grant certificates of exemption from sales and use taxes to contractors and subcontractors licensed by the State Licensing Board for General Contractors. It applies to the purchase of building materials and construction materials to be used in the construction of a building or other project for a governmental entity that is exempt from the payment of sales and use taxes. The exemption certificates would not be issued for highway, bridge, or road projects. In essence, this would reinstate a law repealed in 2004 (former Section 40-9-33 Code of Alabama) but would additionally impose severe penalties for abuse. The Senate amended this bill to delay its effective date so that it only applies to (new) contracts entered into, on, or after January 1, 2014.
Act 2013-196 (HB 216) – Technical Correction to Airplane Parts Sales Tax Exemption: Last year, Alabama Act 2012-185 provided a state sales tax exemption for parts, components, and systems used in the conversion, reconfiguration, or maintenance of certain aircraft in this state. This year’s Act 2013-196 provides an equivalent state use tax exemption and is retroactively effective for the fiscal year beginning on October 1, 2012. Notably, neither Act 2012-185 nor this act extends the exemption to local taxes unless they are previously exempted by local law or approved by resolution of the local governing body.
Act 2013-200 (HB 279) – Aviation Jet Fuel Exemption: This act exempts purchases of aviation jet fuel made by air carriers conducting scheduled all-cargo operations engaged in international flights from sales and use tax. In addition, this newly signed act provides for a refund of excise tax paid at the rack on purchases of aviation jet fuel made by such air carriers.
Act 2013-___ (SB 240) – Durable Medical Equipment: SB 240 specifies that the sale of durable medical equipment, prosthetics, and orthotics devices, and medical supplies are exempt from any state, county, and municipal sales and use taxes. The qualifying products are defined under the Medicare program and must be sold pursuant to a valid prescription and billed to a third party payer. Although SB 240 was initially retroactive in effect, it was amended to delay the effective date until October 1, 2014, and delete the retroactive provisions. This bill passed the House on the last day of the session and now awaits the Governor’s signature.
Act 2013-___ (HB 175) – Ophthalmologists vs. Optometrists:
Currently, the dispensing of certain ophthalmic materials (e.g., lenses, frames, eyeglasses, contact lenses, etc.) by a licensed ophthalmologist is not considered a sale subject to sales tax. Many of the same materials would, however, be subject to sales tax if sold by an optometrist. This act provides that ophthalmic materials dispensed by ophthalmologists are considered sales subject to state sales tax just as sales by optometrists are. This bill passed the Senate on the last day of the session and now awaits the Governor’s signature.
PROPERTY TAX PROPOSALS
Act 2013-295 (HB 19) – Homestead Exemption Clarified: Prior to the enactment of Alabama Act 2012-313, persons age 65 or over were exempt from all state ad valorem taxes. In addition, if the person age 65 or over had net taxable income of $7,500 or less for federal income tax purposes, the homestead was exempt from all ad valorem taxes. Persons who were permanently or totally disabled were exempt from all state and local ad valorem taxes. Act 2012-313 established a threshold requirement that only persons over the age of 65 or permanently and totally disabled residing in a household with taxable income of less than $12,000 qualify for certain homestead exemptions.
Act 2013-295 restores the homestead exemptions to their pre-Act 2012-313 status, except that the net federal income tax limitation for persons age 65 or over will remain $12,000. This act is retroactive to August 1, 2012, the effective date of Act 2012-313.
Act 2013-___ (HB 47) – Allocation of Foreclosure Sale Procedure: HB 47 provides that if property is sold to pay delinquent property taxes and the purchase price exceeds the amount of taxes owed (plus costs and expenses), the excess from the sale must be paid to the county treasury and held in escrow until it is applied to the redemption of the property or the three-year redemption period lapses. In addition, this act provides that after the three-year redemption period has lapsed, the excess must be paid once any person proves that he or she was the rightful property owner at the time of the sale or paid to any person who, since the sale, has obtained title to the property from the owner. If the excess is not claimed within 10 years of the sale, the county may retain the excess for general fund expenses.
ECONOMIC DEVELOPMENT PROPOSALS
Acts 2013-51 (SB 96) and 2013-___ (HB 455) – Major 21st Century Manufacturing Zone Act: Existing law provides for the creation of tax increment districts by counties and municipalities as a means of financing public improvements to develop blighted and economically distressed areas. Provided that appropriate constitutional authority is otherwise applicable, this act expands the use of tax-increment district financing to include certain facilities (described below) located within a “Major 21st Century Manufacturing Zone.” To qualify as a Major 21st Century Manufacturing Zone, the area must be at least 250 contiguous acres and designated by a municipality to be (a) located in whole or in part within its boundaries or corporate limits; (b) suitable for the site of an automotive, automotive industry-related, aviation, aviation industry-related, medical, pharmaceutical, semiconductor, computer, electronics, energy conservation, cyber technology, or biomedical industry manufacturing facility or facilities; and (c) an area within which an anticipated capital investment of at least $100 million for such project will be made. As amended by Act 2013-___ (HB 455), the Major 21st Century Manufacturing Zone Act became effective as of March 6, 2013.
Act 2013-118 (SB 222) – AIDT Officially Moved: In June 2012, an order from the Governor moved the Alabama Industrial Development and Training (AIDT) Institute from the Department of Postsecondary Education to the Department of Commerce. SB 222, which was signed into law as Act 2013-118, officially places the AIDT Institute under the supervision and oversight of the Secretary of the Department of Commerce. The act also provides for the transfer of the existing employees of the AIDT Institute to the Department of Commerce and further provides that those employees are to be employed outside of the merit system. The act also provides that information regarding a project reviewed by the AIDT Institute remains confidential.
OTHER MISCELLANEOUS ACTS
Act 2013-91 (HB 112) – Unclaimed Property: Act 2013-91 amends certain provisions of Alabama’s Uniform Disposition of Unclaimed Property Act of 2004. It includes provisions to allow banks to treat all deposit products equally regarding abandonment; to allow all payment instruments issued by the state to be remitted to unclaimed property for the benefit of the payee upon expiration; to clarify reporting guidelines to protect the state when receiving property and the holder when remitting property; to allow a surviving parent to claim abandoned property from a child who died intestate; to clarify the treatment of property received by early reporting; and to protect consumers when claiming their property through a third-party source.
Act 2013-___ (HB 261) – Technical Corrections Bill to Terminal Excise Tax Act: This act would clarify and make certain technical corrections to the Terminal Excise Tax Act of 2011, which changed the point of taxation from the distributor level to the terminal rack. HB 261 includes provisions excluding “transmix” and exports from the Wholesale Oil License Fee, exempting K-1 kerosene and aviation fuel refined in Alabama that is sold for immediate export, and clarifying the definition of “Two-Party Exchange” and “Associate Jobber.” This bill passed the Senate on the last day of the session and now awaits the Governor’s signature.
Act 2013-88 (HB 101) The Red Tape Reduction Act: Act 2013-88 amends the Alabama Administrative Procedure Act to require state agencies, including the ADOR, to prepare a “business economic impact statement” prior to implementation of new, amended, or repealed regulations that could have an adverse impact on business. They must file the statement with the Legislative Reference Service at the same time the proposed action is certified. More importantly for the ADOR, under this act each agency must review all its rules and regulations within the next five years and decide which ones should remain and which should be amended or repealed.
Act 2013-240 (HB 562) – Hospital Bed Tax: Under existing law, a privilege tax assessment, supplemental privilege tax assessment, and monthly surcharge are imposed on each bed in a nursing facility. This act extends the current supplemental privilege assessment and monthly surcharge through August 31, 2015—previously, they were set to expire on August 31, 2013.
**Note: Members of our firm’s SALT Practice Group and Governmental Affairs Practice Group were involved in drafting and/or lobbying for several of the bills discussed above.**