SB425 Alabama 2011 Session

Summary

Primary Sponsor

Del Marsh

Republican

Session

Regular Session 2011

Title

Partnerships and limited liability companies, Subchapter K entities and Alabama S corporations, owners and resident beneficiaries of estates or trusts provided a proportionate tax credit for taxes paid to a foreign country, Secs. 40-18-14, 40-18-21 am'd.

Summary

SB425 would require Alabama resident owners of pass-through entities to include their proportionate share of those entities’ income in Alabama gross income and would authorize credits for taxes paid to other states or foreign countries on that income.

What This Bill Does

It amends the gross income definition so residents who are partners, LLC members, S-corp shareholders, or estate/trust beneficiaries must include their share of pass-through income in Alabama gross income, even if the income is earned outside Alabama. It creates two tax credits: (1) a credit for the resident owner’s proportionate share of income taxes paid by the entity to other states or territories due to withholding, composite returns, or entity-level taxes; (2) a credit for the entity’s net income-based taxes paid to foreign countries. Each credit is limited to the Alabama tax that would be due on that income, and the owner must file a certificate showing the outside-source income and taxes paid before claiming the credit.

Who It Affects

• Resident individuals who own or are beneficiaries of Subchapter K entities, Alabama S corporations, or estates/trusts: must report their share of the entity’s income and may claim credits for taxes paid to other states or foreign countries on that income.
• Pass-through entities (partnerships, LLCs, and Alabama S corporations) and the estates/trusts that generate the income: their payments of taxes to other states or foreign countries create credits for the resident owners and affect how the income is taxed.

Key Provisions

• Redefines gross income to include a resident owner's proportionate share of income from Subchapter K entities, Alabama S corporations, or estates/trusts, regardless of where the income is earned.
• Allows resident owners to claim a credit for their proportionate share of income taxes paid or accrued to a foreign country related to the entity's trade or business income, with a limit equal to the Alabama tax that would be due on that income.
• Allows resident owners to claim a credit for income taxes paid by the entity to other states or territories on income outside Alabama, with the credit limited to the Alabama tax that would be due on that income.
• Requires the owner to file a certificate with the Alabama return detailing outside-source income and taxes paid before claiming the credits.
• Supersedes conflicting Department of Revenue rules (Gross Income Regulations) to align with these changes.
• Effective for tax years beginning after December 31, 2010, with retroactive relief from penalties for underpayment due to retroactive application.

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