HB384 Alabama 2018 Session

Updated Feb 26, 2026

Notable

Summary

Primary Sponsor: Rod Scott
Democrat
Session: Regular Session 2018
Title: Income tax credit only offset tax liability derived from non-Alabama sources, Sec. 40-18-21 am'd.
Summary: HB 384 narrows Alabama's tax credit for taxes paid to other states by tying it to the portion of a taxpayer's liability that comes from non‑Alabama income.
What This Bill Does
It changes how the credit is calculated by limiting it to the part of the Alabama income tax liability that is due to income earned outside Alabama. The calculation uses a ratio based on adjusted gross income to separate out‑of‑state income from total income. The credit cannot exceed the Alabama tax that would be due on that income, and a certificate showing outside income and taxes paid must be filed. It also adds a 50% foreign-country tax credit for certain pass-through income, subject to the same overall Alabama tax limits, and the bill becomes effective for tax years starting in 2018.

Who It Affects
Alabama resident individuals with income from both inside and outside Alabama; their credit for taxes paid to other states will now be limited to the portion of their Alabama tax liability linked to out‑of‑state income and requires a certification.
Owners/partners/shareholders/beneficiaries of certain entities (Subchapter K partnerships, Alabama S corporations, estates or trusts) with income from outside Alabama; their credits for taxes paid to other states, and for foreign-country taxes on that income, are limited proportionally and capped by Alabama tax on that income.

Key Provisions
Amends 40-18-21 to limit the credit for taxes paid to other states to the portion of the taxpayer's Alabama tax liability that is attributable to income from non-Alabama sources, using a fraction of total Alabama adjusted gross income.
Credit cannot exceed the amount of tax that would be due under Alabama rates on the same income; if taxes paid to another state exceed Alabama tax on that income, only the Alabama amount is allowed.
For pass-through entities and their owners (e.g., Subchapter K members, Alabama S corporation shareholders, estate/trust beneficiaries), the credit is limited to 50% of the portion of taxes paid on foreign income, and is also capped by Alabama tax on that income.
A claim for the credit requires a certificate showing gross/net income from outside sources and the amount of tax paid or due on that income.
Refund provisions allow certain 2013-2017 overpayments to be refunded without considering the new limit, with specific deadlines for pre-2017 refunds; the act takes effect for tax years beginning January 1, 2018.

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