AL: Department issues report on preliminary guidance on tax cuts and jobs act

The Alabama Department of Revenue recently issued a 50-page report addressing how various aspects of federal tax reform interact with Alabama’s individual, corporate, and financial institution tax laws. The guidance in the report is preliminary and is subject to change as additional information becomes available, such as new federal guidance, as well as input from both other tax agencies and the private sector. On the corporate tax side, the report explains the applicable federal change under various Internal Revenue Code sections and then addresses whether Alabama’s law is tied to the federal law. For example, Alabama’s corporate tax law is not tied to the federal NOL provisions, so Alabama does not adopt the limits on the use of NOLs. In contrast, Alabama’s corporate tax law does tie to federal bonus depreciation so Alabama adopts 100 percent bonus for property placed in service on or after September 27, 2017 and before January 1, 2023. With respect to the federal limitation on the deductibility of interest, the report clarifies that Alabama does adopt the federal limits and that they apply before Alabama’s related party interest addback statute. So, after determining the allowable interest deduction under federal law, factoring in the limitation, the resulting deduction is allocated on a pro-rata basis between related and unrelated interest. With respect to the taxation of GILTI under IRC section 951A and the corresponding section 250 deduction, the report notes that Alabama conforms to these provisions. The report notes that the Department had previously issued guidance on the state’s treatment of amounts required to be included in income under IRC section 965. For corporate taxpayers, that guidance explained that repatriated income and related expenses must be reported on Schedule A of the Alabama Form 20C. If the reporting corporation owns more than 20 percent of the controlled foreign corporation from which the section 965 income is received, the repatriated income may be offset by a dividends received deduction. It should be noted that there are certain provisions that Alabama conforms to for purposes of the corporate income tax that are not adopted for purposes of the financial institutions excise tax. Please stay tuned to TWIST for additional guidance on state treatment of federal tax reform.