As previously reported, during the recent legislative session the Alabama Legislature finally resolved the so-called “Moody Issue,” named after the taxpayer victory in Moody v. Alabama Department of Revenue, regarding the credit for income taxes paid by an Alabama resident to other states, either directly or indirectly (see our SALT Alert from April 3, 2018). This alert is issued to remind our readers to consult the helpful guidance posted by the ADOR on its website and, more importantly, that all calendar year 2014-2017 refund claims that are still within the applicable statute of limitations must be filed by Saturday, June 30, 2018. For the 2017 tax year, however, the legislation and the ADOR Notice assume that taxpayers and return preparers will calculate the tax credit without the additional AGI limitation invalidated in the Moody litigation and file their returns accordingly. The act is effective for tax years beginning on or after January 2018, i.e., prospective only.

We have heard from several CPAs that the Department of Revenue is now granting previously denied refund claims but, reportedly, without paying statutory interest. 

Remember Start Date for New ADOR Tax Amnesty Program

Another important date is July 1, 2018, the effective date of the Alabama Tax Delinquency Amnesty Act of 2018, enrolled as Act 2018-153.  This program allows the waiver of both penalties and interest on remittance of eligible taxes. We caution taxpayers and their advisors to read the act carefully, since there are several limitations on who may qualify and which tax types and tax periods are included in the new amnesty program. 

The program will apply to “all taxes administered by the department except for motor fuel, motor vehicle and ad valorem property taxes” (Act §3(b)). Thus, individual and corporate income, sales, use, rental, lodgings, business privilege, financial institution excise, and insurance premium taxes would qualify. However, the broad scope of that statement in the act is then limited by a number of conditions. For example, the taxes must have been due prior to January 1, 2017, and they must relate to tax periods that began before January 1, 2017. 

The so-called “look-back” period for which approved taxes must be remitted covers the last three full tax years (or 36 months if the return is due monthly) of “eligible tax returns,” unless the taxpayer collected an eligible tax, e.g., sales or withholding tax, but failed to remit the tax to the ADOR. In that case, the look-back period extends to all past periods through the date of collection of the tax at issue.

There are certain taxpayers who are ineligible for the program, and that’s where we suggest that tax advisors initially focus. The taxpayer cannot have been contacted by the ADOR for the two-year period prior to submitting the amnesty application. Also, a taxpayer is ineligible if he or she is a party to a criminal investigation or criminal litigation in any state or federal court on the effective date of the act; if the matter relates to the non-payment, delinquency, or fraud related to any state tax administered by the ADOR; or if the taxpayer has been issued a final assessment of the tax at issue and didn’t timely appeal the assessment.

Two other exceptions are also noteworthy: if the taxpayer entered into a voluntary disclosure agreement with the ADOR prior to December 31, 2017, or if the taxpayer was granted amnesty for any tax type under the Alabama Tax Delinquency Amnesty Act of 2016.  

There is also a look-forward catch. If the taxpayer is granted amnesty under this program but later fails to comply with “any payment or filing provision administered by the department…” for any tax period beginning in 2017 and through 2024, a negligence penalty will automatically be assessed. And not surprisingly, if the taxpayer delivered a false or fraudulent application, document, tax return, etc. to the ADOR in connection with its amnesty application, an automatic fraud penalty will be assessed or a civil penalty of $10,000, whichever is greater. 

This window of opportunity closes on November 15. For more details, visit alabamataxamnesty.com.

Proposed Rental Tax Regulation of Interest. 

In response to the Alabama Tax Tribunal’s ruling in B&B Inflatable Fun World, LLC v. State of Alabama Department of Revenue (Dkt. No. S. 15-1595 (July 20, 2016)), the ADOR proposes to amend one of its longstanding rental tax rules, Rule 810-6-5-.09.01, “Leasing and Rental of Tangible Personal Property – Rule No. 2.” The proposed amendment deals with a lessor that is engaged in leasing tangible personal property in-state and delivers and picks-up the leased vehicle, equipment, etc. as part of the rental contract. The current regulation states that if delivery and pick-up services are part of the rental contract, then the entire charge is subject to rental tax. If, however, there is a “separate, optional agreement for delivery and pick-up . . .” then the rental tax is not due on the lessor’s charges (if any) for those services.

The proposed regulation deletes the separate, optional agreement exception and substitutes the following caveat: “A separate agreement for delivery and pick-up services is considered part of the lease agreement and delivery and pick-up fees are subject to the rental tax. A lessor cannot separate the delivery and pick-up fees as a means to avoid the rental tax.” [emphasis added]

Readers may recall that B&B Inflatable invalidated a portion of the subject regulation by ruling that rental tax should always apply to charges for delivery – regardless – but if pick-up by the lessor is optional and occurs after the stated rental period has expired, then charges for that service remain exempt from rental tax. Thus, the proposed regulation goes somewhat beyond the scope of B&B Inflatable by proposing to levy rental tax on both delivery and pick-up fees, regardless of whether they’re optional and contained in a separate agreement of some sort. The public hearing on the proposed regulation has been set for July 10, 2018, at the ADOR’s headquarters in Montgomery. Comments on the proposed regulation should be delivered to Deputy Commissioner Mike Gamble, in his capacity as Secretary of the Department, at or prior to the hearing.