HB373 Alabama 2011 Session

Summary

Primary Sponsor

Joe Hubbard

Democrat

Session

Regular Session 2011

Title

Taxation, factor presence nexus standard based on business activity established for purpose of being subject to income taxation in the state, in state residence or domicile for individuals, businesses organized in state are subject to tax, nonresident individuals and businesses organized out of state that do business in the state are subject to state tax on income, Sec. 40-18-31.27 added

Summary

HB373 would create a factor presence nexus standard for Alabama income tax, taxing residents, in-state entities, and certain out-of-state businesses based on their economic activity in Alabama.

What This Bill Does

It says residents and Alabama-based entities have substantial nexus with the state, and nonresidents or out-of-state entities have nexus if their property, payroll, or sales in Alabama exceed set thresholds. The thresholds are property $50,000, payroll $50,000, sales $500,000, or 25% of total; thresholds are adjusted annually using the consumer price index. It also defines how to count property, payroll, and sales, and sets rules for pass-through entities and for commonly owned enterprises or unitary business groups to determine who owes income tax. The bill includes a Public Law 86-272 caveat and is effective for tax year 2011 and later.

Who It Affects

• Alabama residents and Alabama-based businesses, who would have substantial nexus and be subject to Alabama income tax.
• Nonresident individuals and out-of-state businesses doing business in Alabama (including certain pass-throughs) who exceed the thresholds and thus would owe Alabama income tax and be subject to reporting requirements.

Key Provisions

• Adds Section 40-18-31.2 to establish a factor presence nexus standard for income tax.
• Residents/domiciliaries and Alabama-organized/commercially domiciled entities have substantial nexus; nonresidents/out-of-state entities have nexus if in-state property, payroll, or sales exceed thresholds.
• Nexus thresholds: $50,000 property, $50,000 payroll, $500,000 sales, or 25% of total property/payroll/sales, with annual CPI-based adjustments.
• Definitions for property (average value in-state, owned vs leased), payroll (compensation paid in-state with rules on where service is performed), and sales (receipts including real property, tangible property, services, intangibles, digital products, with apportionment rules for multi-state use).
• Pass-through entities determine thresholds at the entity level; if thresholds are met, members/owners are taxed on their portion of income earned in Alabama.
• Commonly owned enterprises aggregate property, payroll, and sales for nexus; unitary business groupings are used for aggregation; if aggregate thresholds are met, each entity in the unitary group owes tax.
• Public Law 86-272 caveat: states lacking jurisdiction under 86-272 do not gain tax power; throwback rules apply if the law is repealed.
• Effective for tax year 2011 and subsequent years.

AI-generated summary using openai/gpt-5-nano on Feb 24, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation