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Act 2021-1 Frequently Asked Questions

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Act 2021-1 Frequently Asked Questions

On February 12, 2021, Governor Kay Ivey signed into law Act 2021-1. The following preliminary guidance is being providing in regard to Sections 6, 7 and 8 of the Act.

 

Section 6 – Brief Overview: Section 6 of the act amended Section 40-27-1 to establish a single sales factor income tax apportionment formula. The single sales factor formula replaces the current four factor apportionment formula (property, payroll, and double weighted sales) for tax periods beginning on or after January 1, 2021.

Frequently Asked Question: Does the single sales factor apportionment formula apply to industries whose sales factors are currently calculated in accordance with Rules 810-27-1-.18.02 through 810-27-1-.18.07.

    Yes.  Act 2021-1 provides that “[a]ll business income shall be apportioned to this state by multiplying the income by the sales factor.” This apportionment formula will therefore apply to all income taxpayers with business income apportioned to this state for tax periods beginning on or after January 1, 2021, including those that are subject to the rules 810-27-1-.18.02 through 810-27-1-.18.07.  For purposes of the single sales factor apportionment formula, these rules will continue to provide the appropriate procedures for these taxpayers to determine their sales that are attributable to Alabama.

 

Section 7 – Brief Overview: Section 7 of the act decouples the state’s corporate income tax laws from the provisions of the federal Tax Cuts and Jobs Act of 2017 (TCJA) related to Global Intangible Low Taxed Income (GILTI) and related deductions. This section of the act is effective for tax periods beginning after December 31, 2017.

Frequently Asked Question: If this section applies to either my 2018 or 2019 return, should I file an amended return?

    No. Section 11 of the act specifically states that no refunds will be granted or paid for tax years ending before January 1, 2020, related to the provisions of the act. As a result, no adjustments related to the decoupling from the federal GILTI provisions can be made to previously filed returns. No assessments will be issued, no refunds or credits will be granted, and no adjustment of any tax attributes such as Net Operating Losses can be made.

 

Section 8 – Brief Overview: Section 8 decouples the state from the provisions of the TCJA amending the IRC Section 118 related to the taxation of contributions of capital to corporations. This section is effective for contributions made on or after December 23, 2017.

Frequently Asked Question: If this section applies to either my 2018 or 2019 return, should I file an amended return?

    No. Section 11 of the act specifically states that no refunds will be granted or paid for tax years ending before January 1, 2020, related to the provisions of the act. As a result, no adjustments related to the decoupling from the federal changes to IRC Section 118 can be made to previously filed returns. No assessments will be issued, no refunds or credits will be granted, and no adjustment of any tax attributes such as Net Operating Losses can be made.