SB342 Alabama 2018 Session

Summary

Primary Sponsor

Rodger SmithermanSenator

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

The bill narrows Alabama's income tax credit for taxes paid to other states so it only offsets the portion of tax liability tied to income earned outside Alabama.

What This Bill Does

It limits the credit to the portion of the taxpayer's Alabama tax liability that comes from non-Alabama income. The credit cannot exceed the Alabama tax that would be due on that income under Alabama rates. For pass-through owners and beneficiaries with foreign income, the credit for foreign taxes is limited to 50% of their share of the foreign tax and cannot exceed Alabama tax on that income. A certificate showing outside-state income and taxes paid must be filed before claiming the credit, and the changes apply to tax years beginning January 1, 2018.

Who It Affects

• Alabama resident individuals with income from both inside and outside Alabama, whose credit will now be limited to the portion of tax liability from non-Alabama sources.
• Owners, partners, or beneficiaries of pass-through entities (such as Subchapter K entities, Alabama S corporations, and estates/trusts) that have foreign or outside-state income, whose foreign-income credit is limited to 50% of their share of foreign taxes and capped by Alabama tax on that income.

Key Provisions

• The credit for taxes paid to other states is limited to the portion of the taxpayer’s Alabama tax liability attributable to income from outside Alabama (effective for tax years beginning January 1, 2018).
• The credit may not exceed the amount of tax that would be due under Alabama rates on the same income.
• For pass-through owners and foreign-income, the credit equals 50% of the taxpayer’s proportionate share of foreign income tax and cannot exceed Alabama tax on that income.
• Before claiming the credit, the taxpayer must file a certificate showing gross and net income from outside Alabama and the amount of tax paid.

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