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Corporate Income Tax FAQ

What are the recent law changes that affect filing a corporate income tax return?
Electronic Filing Option. Alabama’s Paperless Filing and Payment System (ACH Debit Method) is no longer available. Effective July 1, 2013, taxpayers are required to remit electronic payments. Learn More

Alabama Tax Tribunal. Act Number 2014-146 adds Chapter 2B to Title 40 of the Code of Alabama 1975; amends Sections 40-2A-340-2A-440-2A-540-2A-740-2A-8 and 40-18-27; and repeals Section 40-2A-9. This act creates an independent executive branch agency, the Alabama Tax Tribunal and replaces the Administrative Law Division with the tribunal and Administrative Law Judge within the Department of Revenue for hearing appeals of tax matters and other matters of the Department of Revenue.

Rehabilitation, Preservation, and Development of Historic Structures Credit. Act Number 2013-241 is available to corporations. The act provides an income tax credit against the tax liability of the taxpayer for the rehabilitation, preservation, and development of historic structures. The credit is equal to 25% of the qualified rehabilitation expenditures for certified historic structures. The act also provides a tax credit equal to 10% of the qualified rehabilitation expenditures for qualified pre-1936 nonhistoric structures. No tax credit claimed for any certified rehabilitation may exceed $5,000,000 for all allowable property types except a certified historic residential structure, and $50,000 for a certified historic residential structure. The entire credit may be claimed by the taxpayer in the taxable year in which the certified rehabilitation is placed in service. This credit is not refundable, but any unused portion of the credit may be carried forward for up to 10 additional tax years. Act Number 2013-241 was amended by Act Number 2014-452 below.

Rehabilitation, Preservation, and Development of Historic Structures Credit. Act Number 2014-452 amends Act 2013-241, effective retroactively to May 15, 2013. The amended act allows for the credit to be transferred one time. In addition, the law was amended to allow pass through entities to claim the credit. The credit only applies to tax periods beginning on or after January 1, 2014.

Public Law 86-272 Check the Box Option, Taxpayers claiming exemption from state income tax under Public Law 86-272, should check the box, located on Form 20C, page 1.

Is there a time limitation to file my corporate income tax return with a request for a refund?
Yes. Alabama Code §40-2A-7(c)(2) states, “A petition for refund shall be filed with the department or an automatic refund issued pursuant to Section 40-29-71, or a credit allowed, within (i) three years from the date that the return was filed, or (ii) two years from the date of payment of the tax, whichever is later, or, if no return was timely filed, two years from the date of payment of the tax.”

What steps can be taken to verify that a corporation is in compliance with Alabama’s filing requirements?
Complete and submit the Application for Certificate of Compliance to determine whether or not a corporation is in compliance with Alabama’s filing requirements.

Filing Requirements

What is the due date for filing a corporate income tax return?

For tax years beginning on or after January 1, 2016:

Corporations on a calendar year and a fiscal year, other than June 30, the original due date is the 15th day of the 4th month after the end of the tax year.

Corporations with a fiscal year ending on June 30, the original due date is the 15th day of the 3rd month following the end of its tax year.

Extensions:

If an extension has been granted for federal purposes, the extension is also granted for Alabama purposes; the Federal Form 7004 must be submitted with the Form 20C.

NOTE: The full amount of the tax liability is due by the original due date of the return.

What are the filing requirements for an exempt organization operating in Alabama?

Organizations referred to in 26 U.S.C. § 501(a), as well as several others organizations referenced in 40-18-32 will not be required to file corporation income tax returns with the Alabama Department of Revenue for as long as they retain their exempt status under applicable Federal and State laws. If they have unrelated business income as determined in accordance with 26 U.S.C. § 512, the organization should file Form 20C with a copy of Federal Form 990T.

Does our corporation have Nexus in Alabama?
Generally refer to Public Law 86-272, Bright Line Test, to determine if you have nexus in Alabama. However, there are instances where a taxpayer would normally fall under Public Law 86-272 but may be required to file a corporate return. To determine the nexus position and tax responsibility of a corporation in Alabama, complete the nexus questionnaire online at  nexus.revenue.alabama.gov.

Alabama Act 2015-505 established a factor presence standard for business activity in the state determine nexus for business income tax, business privilege tax and financial institution excise tax. A corporation is deemed to have “substantial nexus” for any tax period in which they exceed any of the following thresholds:

  • $50,000 of property,
  • $50,000 of payroll,
  • $500,000 of sales, or
  • 25% of the total property, total payroll, or total sales.

 

The legislation stipulates that the threshold amounts may be adjusted periodically consistent with the Consumer Price Index.

What are the filing requirements for a corporation operating in Alabama as a partner in a partnership?
The corporation should file an Alabama income tax return just as any other corporation. If the income is business income, then the corporation’s pro rata share of the partnerships property, payroll, and sales should be included in the apportionment factor. If the income is nonbusiness, then the income should be allocated to Alabama and/or the appropriate states. See Alabama Rule 810-27-1-4-.02 Application of Apportionment and Allocation.

Is the corporation required to file a corporation income tax return after it qualifies to do business through the Alabama Secretary of State when the business is either inactive or never began?
Yes, if the company has registered or qualified to do business in the state, a Form 20C is required to report no activity and/or business activity as provided by Sections 40-18-2 and 40-18-31, Code of Alabama 1975.

E-Filing Requirements for Corporations & Partnerships

Rules 810-3-28-.07, 810-3-28-.08, 810-3-39-.12 and 810-3-39-.13, were approved by the Alabama Department of Revenue’s Research Division and became effective March 04, 2010. These new rules contain a provision making E-File mandatory for returns prepared by certain tax practitioners. The mandate requirements for tax preparers will be “phased” in over a 2 year period starting January 01, 2009. The economic necessity of this new individual income tax E-File mandate will reduce tax return processing costs for the state. The following list of questions and answers may be helpful to you regarding the mandatory E-File rules.

When is the Corporate/Partnership Income Tax e-file mandate effective?
March 4th, 2010 and applies to acceptable corporate/partnership income tax returns required to be filed for taxable years beginning on and after January 1, 2009.

How does a preparer know if he or she is required to electronically file a corporate/partnership return this year?
If an income tax return preparer prepares 25 or more acceptable, original corporate/partnership income tax returns using tax preparation software in calendar year 2011, then for that calendar year and for each subsequent calendar year thereafter, all acceptable corporate/partnership income tax returns prepared by that income tax preparer must be filed using electronic technology, as defined in the “Electronic Tax Return Filing Act”, as codified in Chapter 30 of Title 40, Code of Alabama 1975.

How does a preparer know if he or she is required to electronically file a corporate/partnership return next year?
If an income tax return preparer prepares 25 or more acceptable, original corporate/partnership income tax returns using tax preparation software in calendar year 2011, then for that calendar year and for each subsequent calendar year thereafter, all acceptable corporate/partnership income tax returns prepared by that income tax preparer must be filed using electronic technology, as defined in the “Electronic Tax Return Filing Act”, as codified in Chapter 30 of Title 40, Code of Alabama 1975.

Is there an Opt-Out provision?
No, there is no opt-out provision for corporate/partnership mandate.

Are there any penalties associated with non-compliance to the corporate/partnership mandate?
No, the first year of the mandate there are no associated penalties.

When is a self-prepared corporate or partnership return included in the mandate?
For a Tax Year 2009 Corporation with assets of $5 million or more, or partnerships with 50 or more partners are mandated to e-file Tax Year 2010 Alabama corporate/partnership income tax returns, and all subsequent tax years.

In situations where our clients do not e-File the federal return, will the state allow the Alabama return to be paper filed?
Yes.

Consolidated Taxpayers

Can a consolidated Alabama return be filed?
For tax periods beginning before January 1, 1999 – No.  Alabama’s income tax laws and rules specifically required each corporation to file a separate return with the department (§40-18-39(a) and Rules 810-3-39-.01).

For tax period beginning after December 31, 1998 – Yes.  Alabama’s Tax Conformity Act (Act 98-502) allows an Alabama “affiliated group” to elect to file a consolidated Alabama tax return, provided the “group” files a consolidated federal return for the same taxable year.  An “Alabama affiliated group” means a group of corporations that constitute an affiliated group as defined in 26 U.S.C. §1504, one or more members of which are subject to tax under §40-18-31.

For tax periods beginning after December 31, 2001 – Yes. Act 2001-1089(HB4) revised the Consolidated filing requirements in Alabama Code Section 40-18-39 for tax periods beginning after December 31, 2001. Alabama consolidated returns can only include Alabama “nexus” companies.

Each corporation included in the Alabama consolidated return must compute their Alabama taxable income on a separate company basis. Then, the taxable income of the Alabama group is combined to determine the tax due. The filing fee has also been increased from a maximum of $12,500 to a $25,000 maximum. This election is binding for 120 consecutive months (10 years).

Where can I find more information pertaining to consolidated corporate returns?
View information regarding Alabama Consolidated Income Tax Returns.

Tax Rates

What is the corporate income tax rate?
For tax years beginning January 1, 2001, the tax rate is 6.5%. For tax years prior to 2001, the tax rate was 5%.

Does Alabama have a minimum corporate income tax?
No, Alabama law does not require the payment of a minimum corporate income tax.

Addresses

What is the mailing address for Form 20C?


Mail returns with payments and payment vouchers to:

Alabama Department of Revenue
Individual and Corporate Tax Division
Corporate Tax Section
PO Box 327435
Montgomery, AL 36132-7435

Mail non-payment and refund returns to:

Alabama Department of Revenue
Individual and Corporate Tax Division
Corporate Tax Section
PO Box 327430
Montgomery, AL 36132-7430

What is the mailing address for the Form 20C-C and payments?

Alabama Department of Revenue
Individual and Corporate Tax Division
Corporate Compliance Section
PO Box 327437
Montgomery, AL 36132-7437

What is the mailing address for returns (20C and 20C-C) with federal audit changes?

Alabama Department of Revenue
Individual and Corporate Tax Division
Corporate Compliance Section
PO Box 327451
Montgomery, AL 36132-7451

Estimated Tax Payments

Does Alabama require estimated tax payments?
Yes. If your tax liability is $500 or more you are required to make estimated tax payments. Please refer to Alabama Code Section 40-18-80.1 for details on the specific requirements.

Does Alabama allow calculations to determine interest and penalty due to underpayments of estimated tax?
Yes, the taxpayer must submit Form 2220AL and the Federal Form 2220 with the return (Form 20C) when filed to compute the required payment and penalty. The taxpayer also has the option to compute their required quarterly installments using an approved federal method (annualized or seasonal). The Form 2220AL will not be accepted after the return (Form 20C) has been submitted.

Net Operating Losses (NOLs)

Does Alabama permit the carry back of a net operating loss?
No, Alabama law does not provide for the carry back of a net operating loss.

Does Alabama have a carry forward provision for net operating losses?
Yes, Alabama’s net operating loss carry forward provision began with net operating losses incurred during a tax year beginning on or after January 1, 1984. Prior to this period Alabama did not have a net operating loss provision. A net operating loss incurred during a tax year beginning on or after January 1, 1984 and before January 1, 1985 can be carried forward 5 years. A loss from a tax year beginning on or after January 1, 1985 can be carried forward 15 years. For tax years beginning on or after January 1, 1985 and before January 1, 1990, the net operating loss deduction was limited to $600,000 per year.

NOTEFor all tax periods beginning during calendar year 2001, Section 40-18-35.1 (Act 2001-1088 (HB2)) suspends net operating losses.

Deductions and Credits

Does Alabama provide for a federal income tax deduction?
Yes, Federal income tax may be deducted for the taxable year in which paid or accrued, according to the method of accounting used in computing taxable income. The federal income tax allowable as a deduction is the net tax liability as accrued and subsequently paid, that is, the amount after subtracting all deductible and/or refundable credits.

The federal income tax deduction for any taxable year for members of an affiliated group filing a consolidated federal income tax return, shall be determined in accordance with the method elected under 26 U.S.C. §1552 (without regard to any election under 26 U.S.C. §1502) for its consolidated federal return.

Corporations which do business in Alabama are allowed to deduct federal income taxes attributable to their Alabama income (Code of Alabama, 1975, §40-18-35(a)(2), and Rule 810-3-35-.01(1)(b).

Does Alabama have a contribution deduction limit?
Yes, charitable contributions are deductible to the extent deductible for federal income tax purposes under 26 U.S.C. §170.

Where can I find information pertaining to Capital Credits?
Capital Credit Information is located on the Tax Incentives page.

What schedule must be filed to report business credits?
Schedule BC. The Alabama Department of Revenue now requires the use of Schedule BC, Business Credits, when claiming business tax credits. The new schedule allows the taxpayer to compute the total amount of tax credits allowable. The amounts entered on the Schedule BC will carry over to the Form 20C, page 1, line 16f. This schedule must be submitted with the return to receive credit(s). See instructions for Schedule BC for additional information.

Where can I find information pertaining to Small Business Health Premiums?
View information on the Small Business Health Premiums Deduction (Act 2008-559, amended by Act 2011-155). View Form 4020- Small Business Health Insurance Deduction Information.

Where can I find information pertaining to the Reemployment Act of 2010?
View information on the Reemployment Act of 2010

Where can I find information pertaining to the Alabama Accountability Act of 2013?
The Alabama Legislature passed Act Number 2013-64 during the 2013 Regular Session. The act authorizes a tax credit for contributions to organizations that provide educational scholarships to qualifying schools. The credit is equal to 100% of the total contributions made to a scholarship granting organization for educational scholarships during a taxable year for which the credit is claimed up to 50% of the tax liability of the taxpayer. For more information, please visit the Alabama Accountability Act Guidance page

IRS Audits

What are the reporting requirements as the result of an IRS audit?
To report changes made by the IRS, a corporation shall file an amended Form 20C or Form 20S for the specific tax period. The following information MUST be included with the amended return (see Regulation 810-3-40-.01(4)):

  • A complete copy of the revenue agent’s report (RAR) provided by the IRS to include, but not limited to, Form 4549-A, 4549-B and Form 870,
  • A copy of the Form 20C or 20S as originally filed, and
  • Federal Form 1120 as originally filed and/or amended.
  • If the corporation is part of a consolidated group, the following information is required along with the above information:
  • A listing of the IRS adjustments made to each company in the consolidated group,
  • A copy of the Federal Form 851, Affiliations Schedule,
  • A copy of the income statement spread for every company, and
  • A copy of the consolidated Federal 1120 as originally filed and/or amended.

If the IRS audit results in a refund, the request for refund must be made within one year from the date of final determination of the IRS audit. If the audit results in additional tax due, the department can assess the additional tax within one year after the Department has been notified.

Multistate Tax Compact 

Has Alabama adopted the provisions of the Multistate Tax Compact?
Yes, Alabama has adopted the provisions of the Multistate Tax Compact which provides for the allocation and apportionment of income of taxpayers doing business in more than one state (Code of Alabama, 1975, 40-27-1, and Rule 810-27-1-4).

EFT Information

When is electronic funds transfer (EFT) filing required?
If your tax liability is $750.00 or more you must remit your tax payment by electronic funds transfer (EFT). Call the EFT unit at 1-877-256-2447 or (334) 353-7659.  For more information on EFT, please go to ADOR’s Make A Payment Page.

New taxpayers, who have recently registered with the Alabama Secretary of State, will receive an Online Filing Information letter. The Online Filing Information letter is for “information purposes” and provides the taxpayer with a Sign On ID and Access Code which permits access to My Alabama Taxes (MAT) via Internet.

Electronic Payment Options Available:

ACH Debit – Taxpayers making e-payments via ACH Debit must have a Sign On ID and Access Code to login to  My Alabama Taxes (MAT) . Pre-registration is not necessary to make a payment on an invoice or assessment.

ACH Credit – Taxpayers making e-payments via ACH Credit must be pre-approved by ADOR. To register, complete and submit Form EFT: EFT Authorization Agreement Form .

Alabama Interactive – The Department will accept e-payments for estimated and automatic extension payments through Alabama Interactive. Visit Tax Estimation or Tax Extension .

Official Payments – The Department will accept credit card payments through Official Payments Corporation. Visit Official Payments Corporation . There is a convenience fee for credit card payments. The fee is based on the amount of the tax payment and is paid directly to Official Payments Corporation.

Value Payment Systems – The Department will accept credit card payments through Value Payment Systems. You may choose to use your Discover/Novus, MasterCard or Visa card. Value Payment Systems does not accept the American Express card but has a program called BillMeLater. Visit Pay Al Tax . There is a convenience fee for this service. The fee is based on the amount of the tax payment and is paid directly to Value Payment Systems.