HB44 Alabama 2015 1st Special Session

Summary

Primary Sponsor

David FaulknerRepresentative

Republican

Session

First Special Session 2015

Title

Income tax, factor presence nexus standard based on business activity established for purpose of being subject to income tax in the state, tax applicable to in-state residents and businesses, and to nonresidents that do business in the state, Sec. 40-18-31.2 added

Summary

HB44 would establish a factor presence nexus standard for Alabama income tax, making residents, Alabama-based businesses, and certain nonresidents subject to tax based on their activity in the state.

What This Bill Does

The bill adds a new Section 40-18-31.2 to define substantial nexus for income tax based on property, payroll, and sales in Alabama. It sets threshold amounts ($50,000 property, $50,000 payroll, $500,000 sales, or 25% of total) that trigger tax liability for residents and nonresidents doing business in the state, and it adjusts these thresholds annually using the CPI. It explains how to measure property, payroll, and sales and states that pass-through entities are taxed at the entity level with effects passed to members if thresholds are exceeded. It also preserves Public Law 86-272 protections and notes an effective date for tax years beginning after December 31, 2014.

Who It Affects

• In-state residents and Alabama-based businesses: subject to Alabama income tax when their property, payroll, or sales in the state meet the nexus thresholds.
• Nonresident individuals and out-of-state businesses doing business in Alabama (including owners of pass-through entities): become subject to Alabama income tax if their Alabama property, payroll, or sales meet the nexus thresholds; pass-through entity thresholds affect the tax liability of members/owners.

Key Provisions

• Establishes a factor presence nexus standard for income tax by adding Section 40-18-31.2.
• Defines substantial nexus for residents and nonresidents using thresholds: $50,000 property, $50,000 payroll, $500,000 sales, or 25% of total property/payroll/sales in Alabama.
• Requires annual CPI-based threshold adjustments; adjustments apply to tax periods after the change and are rounded to the nearest thousand dollars.
• Details how property, payroll, and sales are measured and allocated for nexus (including property value, compensation in-state, and various sales definitions).
• Apportionment rules for special methods and pass-through entities; entity-level thresholds determine tax liability passed through to members/owners.
• Maintains Public Law 86-272 protections; explanations of throwback provisions and potential changes if Congress revises the law.
• Effective for tax years beginning after December 31, 2014.

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