SB126 Alabama 2011 Session

Summary

Primary Sponsor

Tom Whatley

Republican

Session

Regular Session 2011

Title

Income tax credit for qualified research and development expenses for financial institutions and businesses, including owners of pass-through businesses, authorized, Secs. 40-18-280, 40-18-281 added; Sec. 40-16-8 am'd.

Summary

SB126 would create in-state tax credits for qualified research expenses in Alabama, available to businesses (including pass-through owners) and financial institutions.

What This Bill Does

It defines qualified research expenses as those under IRS Code Section 41 that are performed and incurred in Alabama, including University Research Contract QRE. It provides a nonrefundable tax credit equal to 6.5% of the QRE against either the financial institution excise tax or state income tax, with a 15% credit if the QRE is incurred under a university research contract; credits can be carried forward up to 10 years and must be applied after other credits. For pass-through entities, the credit is allocated to owners (proprietors, shareholders, partners, members, or beneficiaries) and claimed against their individual or corporate taxes, subject to limits and the option to treat part of the credit as a nonrefundable estimated tax payment. Credits cannot exceed the amount of tax due for the year and unused credits may be carried forward up to 10 years.

Who It Affects

• Businesses that incur qualified research expenses in Alabama (including owners of pass-through businesses) would be eligible for in-state tax credits against their state income tax or corporate tax, reducing their tax liability if they incur QRE.
• Financial institutions operating in Alabama and their owners/partners (including owners in pass-through entities) would be eligible for credits against the financial institution excise tax and, for pass-throughs, through to owners on their individual or corporate taxes.

Key Provisions

• Qualifies research expenses are defined as in IRS Section 41, performed and incurred in Alabama, and excludes out-of-state or foreign research.
• Credit rates: 6.5% of QRE against the financial institution excise tax or state income tax; 15% if the QRE is incurred under a University Research Contract.
• Credits are nonrefundable and must be claimed in the year earned; credits are applied after other state income tax credits; unused credits may be carried forward up to 10 years.
• Pass-through credits (for LLCs, partnerships, S corporations, etc.) are allocated to owners (proprietors, shareholders, partners, members, beneficiaries) and claimed against the appropriate individual or corporate tax, with the credit not to exceed the amount due and with a 10-year carryover.
• An owner may elect to treat part of the credit as a nonrefundable estimated tax payment, subject to limitations.
• Key definitions include QRE, University Research Contract, and the treatment of QRE incurred under university contracts.
• Effective date: the act becomes law on the first day of the third month after passage and approval.

AI-generated summary using openai/gpt-5-nano on Feb 25, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation