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In last move of session, Legislature removes state income tax on restaurants’ federal rescue money

By MARY SELL, Alabama Daily News

In one of its final moves of the 2021 session, the Alabama Legislature Monday ensured that restaurant owners don’t have to pay state income taxes on the newest round of COVID-19 federal relief.

Sen. Dan Roberts, R-Mountain Brook, earlier in the session sponsored a bill to clarify tax code to ensure restaurant grants in the Biden administration’s $1.9 trillion American Rescue Plan don’t raise the state income tax liability for owners. It also would have untaxed the plan’s enhanced child tax credit, earned income tax credit and child and dependent care tax credit.

But that bill didn’t move because legislative leaders said it could wait until a special session later this year, or even early in the 2022 session.

Roberts instead got the restaurant language on the existing House Bill 227 to allow for an income tax credit for the construction of storm shelters.

Roberts said Alabama restaurants are expected to receive about $426 million in grants and if lawmakers didn’t act, the businesses would be taxed on that money.

“Helping our restaurants was simple and critical for their business timing,” Roberts told Alabama Daily News Monday.

The federal Restaurant Revitalization Fund provides restaurants and other eligible businesses with grants equal to their pandemic-related revenue loss, up to $10 million per business and no more than $5 million per physical location. The funds can be used for eligible expenses, such as payroll and rent.

Roberts said untaxing the family credits will be a priority when lawmakers next meet. The federal rescue plan’s enhanced child tax credit, earned income tax credit and child and dependent care tax credit will be worth about $1.7 billion to Alabama taxpayers and payments will begin this summer.

If lawmakers don’t act, Alabamians could be taxed a combined $87 million in state income taxes, Roberts said.

Similar legislation was needed earlier this year to prevent the state from collecting taxes on stimulus funds from the 2020 CARES Act.

Sen. Arthur Orr, R-Decatur, also tried to amend HB227 to add more reporting requirements on tax credits, including a “tax credit performance statement” on all new credits. Orr said the amendment was good accountability.

“We want the public to know the good coming out of that credit,” Orr said.

Rep. Joe Lovvorn, R-Auburn, the original sponsor of HB227, objected to the amendment, saying it should be a stand-alone bill. The legislation went to a conference committee where Orr’s amendment was stripped.

As the clock neared midnight, Orr in protest threatened to block a final vote on HB227 but eventually let to through. It was the Senate’s final vote of the 2021 regular session.

The bill goes to the governor.

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