HB49 Alabama 2015 1st Special Session

Summary

Primary Sponsor

Rod Scott

Democrat

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

HB49 adds a factor presence nexus standard for Alabama income tax, making residents, in-state entities, and certain out-of-state businesses taxable based on in-state property, payroll, or sales thresholds.

What This Bill Does

Creates a new nexus rule (Section 40-18-31.2) that treats residents and domestically organized businesses as having substantial nexus with Alabama, and nonresidents as having nexus if their property, payroll, or sales in Alabama exceed set thresholds. Thresholds are 50,000 for property, 50,000 for payroll, 500,000 for sales, or 25% of total property/payroll/sales, with annual CPI-based adjustments. It provides detailed definitions for property, payroll, and sales, and requires pass-through entities to determine thresholds at the entity level; it also notes how nexus interacts with public law 86-272 and outlines the effective tax periods.

Who It Affects

• Alabama residents and domestically organized businesses: have substantial nexus and would be subject to Alabama income tax on income earned in the state.
• Nonresident individuals and out-of-state businesses doing business in Alabama: have substantial nexus and would be subject to Alabama income tax if their Alabama property, payroll, or sales meet the thresholds.
• Pass-through entities (partnerships, LLCs, S corporations, trusts): must determine threshold amounts at the entity level, and income passed through to members/owners would be subject to Alabama tax if thresholds are exceeded.

Key Provisions

• Establishes a factor presence nexus standard for income tax via new Section 40-18-31.2.
• Nexus is substantial if property, payroll, or sales in Alabama meet/exceed thresholds: $50,000 property, $50,000 payroll, $500,000 sales, or 25% of total for any category.
• Annual CPI-based adjustments to thresholds, with adjustments rounded to the nearest $1,000 and applying to tax periods beginning after the adjustment date.
• Defines property, payroll, and sales for nexus calculations and provides detailed rules for how each is counted (including special rules for rentals, compensation, and sales sourcing).
• pass-through entities determine thresholds at the entity level; if thresholds are exceeded, members/owners are taxed on income earned in Alabama and passed through.
• Notes interaction with Public Law 86-272; if repeal occurs, out-of-state businesses would only have nexus if thresholds are met.
• 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