SB19 Alabama 2015 1st Special Session

Summary

Primary Sponsor

Greg AlbrittonSenator

Republican

Session

First Special Session 2015

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. 40-18-31.2 added

Summary

SB19 would create a factor presence nexus standard for Alabama income tax based on a business's in-state property, payroll, and sales, affecting both Alabama residents and nonresidents with in-state activity.

What This Bill Does

It adds a new nexus standard (40-18-31.2) that says residents and Alabama-organized or domiciled entities have substantial nexus with the state for income tax purposes; nonresident individuals and out-of-state entities doing business in Alabama have substantial nexus and may owe Alabama income tax if their in-state property, payroll, or sales meet certain thresholds. The thresholds are $50,000 for property, $50,000 for payroll, $500,000 for sales, or 25% of total property/payroll/sales, and they are adjusted annually for changes in the Consumer Price Index. The bill also defines what counts toward property, payroll, and sales, provides rules for pass-through entities and commonly owned enterprises, and includes a Public Law 86-272 safeguard that can limit or prevent taxation in certain protected cases.

Who It Affects

• Group 1: Alabama residents and businesses organized or domiciled in Alabama would have substantial nexus with the state and be subject to Alabama income tax based on the thresholds if applicable.
• Group 2: Nonresident individuals and out-of-state businesses doing business in Alabama would have substantial nexus and could owe Alabama income tax if their in-state property, payroll, or sales meet the thresholds; there are special rules for pass-throughs, unitary groups, and commonly owned enterprises, as well as protections under Public Law 86-272.

Key Provisions

• Adds Section 40-18-31.2 to establish a factor presence nexus standard for income tax.
• Nexus is substantial for Alabama residents and in-state entities by virtue of domicile/organized status; nonresidents with in-state property, payroll, or sales above thresholds also have substantial nexus.
• Nexus thresholds: $50,000 property, $50,000 payroll, $500,000 sales, or 25% of total property/payroll/sales in the state.
• Annual CPI-based adjustments to thresholds (rounded to the nearest $1,000) if the CPI-U changes by 5% or more since 2015 or since last adjustment; applies to tax periods beginning after the adjustment.
• Definitions: property is average value of real and tangible property in-state; payroll is total in-state compensation; sales include in-state receipts and require apportionment across states when use/division occurs.
• Pass-through entities (partnerships, LLCs, S corps, trusts) determine thresholds at the entity level; if threshold is met, members are taxed on their in-state income.
• Commonly owned enterprises aggregate property, payroll, and sales across related entities to determine nexus; if aggregate meets a threshold, the enterprise must file and entities within unitary groupings pay tax.
• Unitary business groupings are used to determine nexus and taxation; if no required unitary report in Alabama, taxpayers use their common unitary reporting practice in other states.
• Public Law 86-272 caveat: if a state cannot tax due to 86-272, it cannot gain jurisdiction even if thresholds are met; if 86-272 is repealed, nexus would depend on the thresholds.
• 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