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Tax reform, economic development bills sent to Ivey

By MARY SELL and TODD STACY, Alabama Daily News

MONTGOMERY, Ala. – The Alabama Senate on Wednesday gave final passage to bills preventing the taxing of federal relief funds and revamping the state’s economic development incentives, sending the first two of three priority bills to Gov. Kay Ivey for her signature.

House Bill 170, sponsored by Rep. Danny Garrett, R-Trussville and Sen. Dan Roberts, R-Birmingham, clarifies that Alabama individuals, businesses and nonprofits don’t have to pay state income taxes on federal funds received from Congress’ relief COVID-19 relief packages. The bill passed the Senate unanimously.

“We are not going to tax any of the stimulus monies that came in for businesses, for individuals, for anyone,” Roberts told Alabama Daily News. “That’s at least $8.7 billion which has come into our state and will not be taxed, these monies are going to do just what they were intended to do —  benefit our state.”

House Bill 192, sponsored by Rep. Bill Poole, R-Tuscaloosa, and Sen. Greg Reed, R-Jasper, reauthorizes and revamps the state’s economic development incentives. It also passed the Senate unanimously.

Both proposals stem from unfinished business leftover from the coronavirus-shortened 2020 legislative session. But instead of relatively simple bills updating the law, sponsors went further, making more substantive changes.

On economic development, House Bill 192 increases the annual caps on the Alabama Jobs Credit and its sister Investment Credit by $25 million in both 2021 and 2022, taking it from $300 million to $350 million. It also increases the cap on the Growing Alabama Credit, which allows local authorities to build and improve industrial parks, from $10 million to $20 million.

The bill also offers tax breaks to automakers who will ship vehicles out of the Port of Mobile, which is timely considering the Alabama Port Authority is building a $60 million automotive terminal that will allow for vehicles to roll on and off of ships. It also creates new incentives for women- and Black-owned businesses.

“These economic development incentives that are being renewed and sharpened have proven to be essential tools in our toolbox when it comes to recruiting and expanding industry across Alabama,” Poole said upon the bill’s passage.

On taxes, Roberts’ and Garrett’s bill includes reforms to the corporate tax code that have been long sought after but never achieved by tax attorneys.

The bill would change how business income is apportioned to Alabama, clarify the corporate deduction for business interest expense and decouple from two corporate provisions of the 2017 federal Tax Cuts and Jobs Act. Roberts said the legislation decouples from the federal taxable income inclusions related to certain income from international subsidiaries and certain state economic development grants and incentives to ensure that corporations doing business in Alabama are not unexpectedly facing an unintended tax burden.

It also ensures that interest deductions for Alabama-based companies conform with intended deductions at the federal level.

One of the more significant provisions gets rid of Alabama’s “throwback” rule for corporate income apportionment, which says that if an Alabama-based company has sales in another state but is not taxed by that other state, then those sales are “thrown back” and included in the income apportioned to Alabama.

Roberts said nearly half of states, including most states surrounding Alabama, have already axed their throwback rules.

“Our Alabama companies have been at a competitive disadvantage,” Roberts said. “This legislation allows Alabama companies to compete at the same level.”

The bill would also allow pass-through entities, of which the majority of Alabama businesses are, to elect to be taxed at the entity level for state purposes if that is optimal for them. Pass-through entities are not subject to corporate income tax and, instead, their profits flow through to owners or members and are taxed under individual income tax.

In all, House Bill 170 would increase tax revenues to the state’s Education Trust Fund by about $12.95 million this fiscal year and about $12.75 million for each year after.

“The pickup is coming from out-of-state sellers who are not Alabama businesses,” Roberts said.

But it’s similar to what they’re currently paying in neighboring states, he said.

“We’re trying to help our businesses be as competitive as possible and give them every advantage we can to succeed,” he said.

Both bills are expected to be signed by Ivey on Thursday.

A third bill deemed priority by House and Senate leadership for the first two weeks of session, Senate Bill 30, was approved in the House Judiciary committee on Wednesday. Sen. Arthur Orr’s bill would give limited protection against COVID-19-related lawsuits to companies and other entities. Two Democrats on the committee, Rep. Chris England, D-Tuscaloosa, and Rep. Merika Coleman, D-Birmingham, voted no.

The bill could get a final vote on the House floor Thursday morning, making it possible for Ivey to sign all three priority bills into law.

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