What is Financial Institution Excise Tax?
The Excise Tax on Financial Institutions is levied to give effect to the provisions of Federal law limiting the right of the states to tax national banking associations. It is not a tax on income but is an excise tax measured by income. The proceeds of the tax, after the expense of administration, are distributed one-half to the municipalities, one-fourth to the counties and one-fourth to the general fund of the State.
Who must file a Financial Institution Excise Tax return? (Form ET-1)
Any person, firm, corporation and any legal entity whatsoever doing business in this state as a national banking association, bank, banking association, trust company, industrial or other loan company or building and loan association, and such term shall likewise include any other institution or person employing moneyed capital coming into competition with the business of national banks, and shall apply to such person or institution regardless of what business form and whether or not incorporated, whether of issue or not, and by whatsoever authority existing.
Act 99-665 requires all financial institutions conducting a credit card business through the issuance of credit cards to Alabama residents or businesses to file a financial institution excise tax return and pay any tax due. No place of business is required.
Financial institution shall not mean or include individual citizens and fiduciaries acting in a representative capacity for individual citizens, not engaged in a banking, loan, investment or similar business, but merely making personal investments of personal or fiduciary funds in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks, nor shall such term apply to insurance companies or insurance associations merely making investments of reserves in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks.
When should returns be filed?
Excise Tax returns should be filed by April 15 following the end of the tax year. A taxable year is defined as a 12-month period which is the fiscal or calendar year of the institution last ended prior to April 1 of the year in which the tax is to be assessed.
Does Alabama allow an extension of time to file?
The Department will allow an extension for either 3 months or 6 months. If requesting a three (3) month extension, 50% of the estimated tax due must be remitted with the extension request on or before April 15th. The balance plus interest must be remitted with the return when filed on or before July 15th. If requesting a six (6) month extension, the entire estimated tax due must be remitted with the extension request by April 15th. The return will be due on or before October 15th. Taxpayers who request extension of time to file Alabama Form ET-1 are encouraged to remit Alabama Form ET-8 and payment electronically. Payments of $750 or more must be remitted electronically. For more information, visit our Payment Options page.
Who may file consolidated returns?
Qualified corporate groups, shall have the option to file one excise tax return on a consolidated basis or to file separate returns. Qualified corporate groups electing to file one excise tax return on a consolidated basis shall be assessed a fee of $6,000 for the privilege of filing on a consolidated basis.
In order for financial institution members of a controlled group to be eligible to elect to file on a consolidated basis, the members would have to meet the following two tests:
What is the current tax rate?
The Financial Institution Excise Tax rate is 6.5% of net income.
How should financial institutions treat NOLs?
All financial institutions shall be allowed to carry back their net operating losses to apply as a deduction against prior income, and to deduct from succeeding years’ income the excess loss. No net operating loss deduction (arising out of a net loss in an earlier or later year) shall be allowed in computing a net operating loss. Casualty losses and losses arising from theft, fraud and embezzlement, however, shall be deductible in computing the net operating loss. A net operating loss for a taxable year may be carried back two years, then forward to the eight succeeding taxable years in chronological order. A successor financial institution shall be allowed to carry over and deduct from succeeding years’ income, the net operating loss of its predecessor.
What taxes are allowed as credits?
Examples of these taxes:
Taxes not taken as a credit may be allowed as a deduction.
What types of interest income is taxable?
All interest is taxable including U.S. Government & State interest.
Are deductions for dividends allowed?
Dividend deduction for Alabama corporations and subs is allowed. (Not applicable to national banks).
Is there a limitation on the amount of contributions deductible?
Yes, contributions are limited to 5% of the net income.
Is interest expense allowed as a deduction?
Interest expense is allowed as a deduction, including interest paid on money borrowed to invest in Federal non-taxable items.
Can an election to file a consolidated return be revoked?
The election to file consolidated return is irrevocable for that year.
How should a multi-state financial institution apportion its income to Alabama?
Allocation and apportionment rules for financial institutions can be found in AL Rule 810-9-1-.05.