HB466 Alabama 2015 Session

Summary

Primary Sponsor

Rod Scott

Democrat

Session

Regular 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

Alabama would adopt a factor presence nexus standard for income tax, using property, payroll, and sales thresholds to determine when residents, in-state entities, nonresidents, and out-of-state businesses owe Alabama income tax, with special rules for pass-throughs and commonly owned or unitary groups.

What This Bill Does

The bill creates a nexus test based on the presence of property, payroll, or sales in Alabama. If any threshold is met, the taxpayer has substantial nexus and is subject to Alabama income taxes, including for pass-through entities where income is passed to members. It also sets rules for how to calculate those thresholds, how to aggregate for commonly owned enterprises and unitary groups, and how CPI changes can adjust thresholds over time.

Who It Affects

• Alabama residents and other individuals domiciled or organized in Alabama would automatically have substantial nexus and be subject to Alabama income tax on income sourced to the state.
• Nonresident individuals and out-of-state businesses doing business in Alabama would have substantial nexus and be taxed if their Alabama property, payroll, or sales exceed the specified thresholds or thresholds tied to 25% of totals; pass-through entities and commonly owned enterprises would pass tax obligations to their members or units as defined.

Key Provisions

• Adds Section 40-18-31.2 to establish a factor presence nexus standard for income tax.
• Thresholds for substantial nexus: $50,000 property, $50,000 payroll, or $500,000 sales, or 25% of total property/payroll/sales in the tax period.
• Annual CPI-based threshold adjustments: thresholds may be adjusted if CPI-U changes by 5% or more since 2015 or the last adjustment, rounded to the nearest $1,000, applying to tax periods beginning after the adjustment.
• Definitions of property, payroll, and sales set out detailed counting rules, including how real and tangible property are valued, how payroll is counted, and how sales receipts are allocated when multiple states are involved.
• Commonly owned enterprises: aggregate minimum presence of $5,000 and file joint information returns; intercompany adjustments may reduce double counting; if thresholds are met, the enterprise files and pays accordingly.
• Unitary business group rules: entities within a unitary group file together; if the unitary aggregate meets thresholds, each entity is treated as having nexus and pays income tax in Alabama.
• Pass-through entities: threshold amounts are determined at the entity level; members, partners, owners pay tax on their share of income earned in Alabama.
• Public Law 86-272 provision: protections under 86-272 limit Alabama’s ability to tax certain out-of-state income; if 86-272 protections end, out-of-state businesses could be taxed if thresholds are met.
• Effective date: applies to tax years beginning after December 31, 2014, following enactment and governor approval.

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