HB 419

Under existing law, a financial institution doing business in Alabama is subject to the Alabama financial institution excise tax. Financial institutions operating in Alabama and other states are required to allocate and apportion their income to Alabama. Existing law provides for annual distributions of the financial institution excise tax to certain counties, municipalities, and the general fund

This bill establishes the Financial Institution Excise Tax Reform Act of 2019 which updates existing financial institution excise tax statutes to provide clarification and codify the current excise tax procedures. This bill also transitions the financial institution excise tax from a post-payment system to a pre-payment system by imposing estimated financial institution excise tax payments. In addition, an alternate distribution formula is provided for counties and municipalities to transition from yearly to quarterly distributions

Relating to financial institution excise tax; to establish the Financial Institution Excise Tax Reform Act of 2019; to provide for an estimated payment system; to provide for an alternate distribution formula to pay the counties and municipalities on a quarterly basis as opposed to a yearly basis; to update existing law to provide clarification and reflect current policies and procedures.

Section 1

This act shall be known and cited as the Financial Institution Excise Tax Reform Act of 2019.

Section 2

Section 40-16-1, 40-16-3, and 40-16-6, Code of Alabama 1975, are amended to read as follows:

§40-16-1.

For the purpose of this chapter, the following terms shall have the respective meanings ascribed to them by this section:

(1) FINANCIAL INSTITUTION. Any person, firm, corporation and any legal entity whatsoever doing business in this state as a national banking association, bank, banking association, trust company, industrial or other loan company or building and loan association, and such term shall likewise include any other institution or person employing moneyed capital coming into competition with the business of national banks, and shall apply to such person or institution regardless of what business form and whether or not incorporated, whether of issue or not, and by whatsoever authority existing. The common parent corporation of a controlled group of corporations eligible to elect to file a consolidated excise tax return, in accordance with Section 40-16-3, shall be considered a financial institution if such parent corporation is a registered bank holding company as defined by the Bank Holding Company Act of 1956, as amended. As a financial institution, the common parent corporation will be governed by Sections 40-16-1 through 40-16-811 and exempt from all income taxes under chapter 18 of this title Sections 40-18-1 through 40-18-85, with the exception that the credit for licenses or taxes as provided by Section 40-16-8 and the regulations issued rules adopted or promulgated pursuant thereto by the Department of Revenue will not apply to amounts of excise tax on financial institutions imposed hereby and paid by such parent corporation. Financial institution shall not mean or include individual citizens and fiduciaries acting in a representative capacity for individual citizens, not engaged in a banking, loan, investment or similar business, but merely making personal investments of personal or fiduciary funds in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks, nor shall such term apply to insurance companies or insurance associations merely making investments of reserves in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks.

(2) INTERNAL REVENUE CODE AND U.S.C. All references in this chapter to the Internal Revenue Code or to 26 U.S.C. shall mean the applicable section of the Internal Revenue Code of 1986, as in effect from time to time, as codified in Title 26 of the United States Code, as in effect from time to time. The Department of Revenue may adopt reasonable rules under the Alabama Administrative Procedure Act prescribing operating rules with respect to the adoption by this state for its financial institution excise tax of certain provisions of the laws of the United States relating to the determination of taxable income for federal income tax purposes, similar to those contained in Section 40-18-1.1 to the extent consistent with this chapter.

(2) NET INCOME. The net income for the taxable year, as in this title defined, arising from the business the privilege to engage in which is hereby taxed, computed by deducting from the gross income arising from such business, without any exclusions from or credit to such gross income, the total amount of the following deductions:

a. All the ordinary and necessary expenses paid or incurred during the year the income is received which is made the basis of the tax in carrying on the business, the privilege to engage in which is hereby taxed, including a reasonable allowance for salaries or other compensation for personal service actually rendered; also all contributions paid by a financial institution as employer to or under a stock bonus, pension, profit-sharing or annuity plan, or if compensation is paid or accrued on account of any employee of any financial institution under the plan deferring the receipt of such compensation, such contributions or compensation shall be deductible, but only to the following extent:

1. In the taxable year when paid, if the contributions are paid into a pension trust and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under Section 40-18-25 in an amount determined as follows: (i) An amount not in excess of five percent of the compensation otherwise paid or accrued during the taxable year to all the employees under the trust, but such amount may be reduced for future years if found by the Commissioner of Revenue upon periodical examinations at not less than five year intervals to be more than the amount reasonably necessary to provide the remaining unfunded cost of past and current service credits of all employees under the plan, plus (ii) any excess over the amount allowable under clause (i) necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Commissioner of Revenue, but if such remaining unfunded cost with respect to any three individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least five taxable years, or (iii) in lieu of the amounts allowable under (i) and (ii) above, an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Commissioner of Revenue plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount not in excess of 10 percent of the cost which would be required to completely fund or purchase such pension or annuity credits as of the date when they are included in the plan, as determined under regulations prescribed by the Commissioner of Revenue; except, that in no case shall a deduction be allowed for any amount (other than the normal cost) paid in after such pension or annuity credits are completely funded or purchased, (iv) any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year in accordance with the foregoing limitations.

2. In the taxable year when paid, in an amount determined in accordance with subparagraph 1 of this paragraph, if the contributions are paid toward the purchase of retirement annuities and such purchase is a part of a plan which meets the requirements of subsection (e) of Section 40-18-25, and if refunds of premiums, if any, are applied within the current taxable year or next succeeding taxable year towards the purchase of such retirement annuities.

3. In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under subsection (e) of Section 40-18-25, in an amount not in excess of 15 percent of the compensation otherwise paid or accrued during the taxable year to all employees under the stock bonus or profit-sharing plan. If in any taxable year beginning after the approval of this chapter by the Governor there is paid into the trust, or a similar trust then in effect, amounts less than the amounts deductible under the preceding sentence, the excess or, if no amount is paid, the amounts deductible shall be carried forward and be deductible when paid in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any such succeeding taxable year shall not exceed 15 percent of the compensation otherwise paid or accrued during such succeeding taxable year to the beneficiaries under the plan. In addition, any amount paid into the trust in a taxable year beginning after the approval of this chapter by the Governor in excess of the amount allowable with respect to such year under the preceding provisions of this subparagraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this subparagraph shall not exceed 15 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan. The term stock bonus or profit-sharing trust, as used in this subparagraph, shall not include any trust designed to provide benefits upon retirement and covering a period of years, if under the plan the amounts to be contributed by the employer can be determined actuarially as provided in subparagraph 1. If the contributions are made to two or more stock bonus or profit-sharing trusts, such trusts shall be considered a single trust for the purposes of applying the limitations of this subparagraph.

4. In the taxable year when paid, if the plan is not one included in subparagraphs 1, 2 or 3, if the employees' rights to or derived from such employer's contribution or such compensation are nonforfeitable at the time the contribution or compensation is paid.

5. For the purposes of subparagraphs 1, 2 and 3, a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within 60 days after the close of the taxable year of accrual.

6. If amounts are deductible under subparagraphs and 3, or 2 and 3, or 1, 2 and 3, in connection with the two or more trusts, or one or more trusts and an annuity plan, the total amount deductible in a taxable year under such trusts and plans shall not exceed 25 percent of the compensation otherwise paid or accrued during the taxable year to the persons who are the beneficiaries of the trusts or plans. In addition, any amount paid into such trust or under such annuity plans in any taxable year in excess of the amount allowable with respect to such year under the preceding provisions of this subparagraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year, together with the amount allowable under the first sentence of this subparagraph, shall not exceed 30 percent of the compensation otherwise paid or accrued during such taxable years to the beneficiaries under the trusts or plans. This subparagraph shall not have the effect of reducing the amount otherwise deductible under subparagraphs 1, 2 and 3, if no employee is a beneficiary under more than one trust, or a trust and an annuity plan. If there is no plan but a method of employer contributions or compensation has the effect of a stock bonus, pension, profit-sharing, or annuity plan, or similar plan deferring the receipt of compensation, this paragraph shall apply as if there were such a plan. Also, all contributions or gifts made by financial institutions to a community chest or to recognized religious, charitable, scientific or educational institutions or agencies, or to institutions or agencies for the prevention of cruelty to children or animals, which are not operated for profit and no part of the net earnings of which inures to the benefit of any private stockholder or individual or contributions or gifts for vocational rehabilitation authorized by the United States Vocational Rehabilitation Act. The amount of such deduction shall not be, however, in excess of five percent of the financial institution's net income as computed without the benefit of this subsection. Such contributions or gifts shall be allowable as deductions only where made to a community chest or institution or agency recognized as such for the above purposes under rules and regulations prescribed by the Department of Revenue. Traveling expenses, including a reasonable amount expended for meals and lodgings while away from home in the necessary business of such institutions; rentals or other payments required to be made as the condition to the continued use or possession for the purposes of such business, or property to which the taxpayer has not taken or is not taking title or in which the taxpayer has no equity, provided the amount and the reasonableness of all such expenditures shall be approved by the state Department of Revenue.

b. All interest paid or accrued within the taxable year on the indebtedness of said business. Also, all dividends paid or accrued within the taxable year on the shares of preferred stock held or owned by a reconstruction finance corporation or any other governmental agency;

c. Taxes actually paid within the year in which the income on which the tax is based was received, except the excise tax imposed by this chapter and taxes assessed against local benefits of a kind tending to increase the value of the property assessed;

d. Losses sustained and determined during the taxable year by the business and not compensated for by insurance or otherwise:

1. The basis for determining the amount of any loss or gain shall be the cost to the financial institution of the asset disposed of less the actual depreciation sustained on physical asset and any reduction charged as an expense upon stocks, bonds or other securities in previous years.

2. No loss shall be allowable unless the property is actually disposed of and the loss thereby determined or an appraisal of the loss is made and allowed under the supervision of the Department of Revenue, except as hereinafter provided.

e. Debts ascertained to be worthless and charged off within the taxable year; provided, that a schedule of such debts shall be filed and the reasons supporting such claim for deduction be filed with the return; provided, further, that bad debts shall not include losses on stocks and bonds or a reduction in the market value of such stocks and bonds except where loss is determined by the sale of such securities; provided, that in the case of any financial institution required by law to be examined by state, federal or federal reserve bank examiners, such debts can be charged off and to such an amount or extent as required to be charged off by state, federal or federal reserve bank examiners. Any reduction in the book value of any stocks or bonds carried on the books of any such financial institution required by any state, federal or federal reserve bank examiners shall be allowed as proper deductions by the state Department of Revenue. On the sale of any securities, the book value of which has been reduced on the requirement of such examiners, and the reduction so made claimed as a deduction, accomplishing a reduction of the tax paid, any excess of the sale price over said book value of such securities shall be reflected as income and subject to the excise tax levied by this chapter. When in the opinion of state, federal or federal reserve bank examiners a debt is recoverable only in part and when a part of such debt is charged off by requirement of state, federal or federal reserve bank examiners, the Department of Revenue shall allow a deduction in an amount equal to the amount of such charge-off;

f. A reasonable allowance for the exhaustion, wear and tear of property used in the business, including a reasonable allowance for obsolescence. The basis for determining the amount of such depreciation deduction shall be the cost of such property, or, if acquired prior to October 15, 1935, the basis shall be the depreciated cost as of October 1, 1935;

g. The amount received as dividends from a corporation organized and existing under the laws of the State of Alabama and the amount received as dividends in liquidation paid from capital;

h. In the discretion of the Department of Revenue, in lieu of such deductions for losses or bad debts, a reasonable addition to reserves therefor and for extraordinary expenses;

i. In the case of savings and loan associations the amount paid out as dividends on the withdrawable shares thereof;

j. In computing the net income of credit unions for the purpose of the excise tax levied by this chapter, there shall, in addition to all other deductions allowed by law, be deducted the amount paid out as dividends on the withdrawable shares of such credit union; and

k. All financial institutions shall be allowed to carry back their net operating losses to apply as a deduction against prior income, and to deduct from succeeding years' income the excess loss, if any, that is not absorbed thereby. For purposes of this subdivision, the term net operating loss means the excess of allowable deductions over gross income. No net operating loss deduction (arising out of a net loss in an earlier or later year) shall be allowed in computing a net operating loss. Casualty losses and losses arising from theft, fraud and embezzlement, however, shall be deductible in computing the net operating loss. A net operating loss for a taxable year ending after the year 1952 may be carried back two years, then forward to the eight succeeding taxable years in chronological order; provided, that no part of the net operating loss which has been previously applied against income for one taxable year may be applied as a carryback or carryover to another taxable year. The net operating loss deduction allowed herein shall be the sum of the carrybacks and carryovers applicable to the taxable years. A successor financial institution shall be allowed to carry over and deduct from succeeding years' income, in the manner prescribed herein, the net operating loss of its predecessor. Refunds under the provisions of this subdivision shall be paid from the current year's receipts.

l. The amount of any aid or assistance, whether in the form of property, services or monies, provided to the State Industrial Development Authority pursuant to subsection (d) of Section 41-10-44.8 in order to induce an approved company to undertake a major project within the state.

(3) NET INCOME. In the case of a financial institution subject to the tax imposed by this chapter, the term “net income” means federal taxable income without the benefit of federal net operating losses, plus the additions prescribed and less the deductions and adjustments allowed by this chapter, as allocated and apportioned to Alabama according to rules adopted by the Department of Revenue pursuant to Section 40-16-4.

(3)(4) TAX YEAR OR TAXABLE YEAR. A full period of 12 consecutive months constituting the fiscal year or calendar year of each financial institution subject to the tax imposed by this chapter ended last prior to April 1, 1935, and thereafter ended last prior to April 1 of each year in which such tax is to be assessed. In the case of any financial institution taxable under this chapter whose business hereby taxed was conducted only during a fractional period of any year, or a period of less than 12 months resulting from a change in accounting period permitted by applicable federal authorities, a return shall be made as herein provided and the tax computed as herein provided, and such tax as assessed shall be an excise tax for the privilege of doing business in this state for such fractional year. (4)(5) STATE TAX YEAR. The calendar year.

(6) TRUST. Any entity which is classified as a trust for federal income tax purposes.”

§40-16-3.

(a) Every financial institution, as in this chapter defined, shall within the first 15 days of April in each year, no later than the due date, including applicable extensions, for its corresponding federal income tax or federal information return, make and file with the Department of Revenue a return, signed under the penalties of perjury by its cashier, treasurer or other authorized officer or employee, if a corporation, or by a person or authorized employee in charge of the conduct of the business to be taxed if an individual, firm, association or other legal entity, in such form as may be prescribed by the Department of Revenue, giving such detailed information as the Department of Revenue may in its opinion require to determine the net income of such financial institution for the taxable year, by the net income of which said excise tax is to be measured.

(b) Qualified corporate groups, as in this chapter defined, shall have the option to file one excise tax return on a consolidated basis or to file separate returns. Qualified corporate groups electing to file one excise tax return on a consolidated basis shall be assessed a no fee of $6,000 for the privilege of filing on a consolidated basis. Newly acquired corporations which have a potential separate return year as well as a consolidated year would shall have the option of filing a separate return including all of their income for that year or filing as part of the consolidated group for the entire taxable year. Newly created, controlled corporations would either file shall have the option of filing a separate return or including all of their income for that year or filing as part of the consolidated return group for the entire taxable year, as determined by the election of the corporate group for that year.

(c) In order for financial institution members of a controlled group to be eligible to elect to file on a consolidated basis, the members would have to must meet the following two tests:

(1) OWNERSHIP TEST. Includable financial institutions will be connected through stock ownership with a common parent corporation, which financial institutions are includable corporations if:

a. Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each of the includable corporations (except the common parent corporation) is owned directly or indirectly applying the attribution rules of 26 U.S.C. § 318 by one or more of the other includable corporations; and

b. The common parent owns directly or indirectly applying the attribution rules of 26 U.S.C. § 318 stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of at least one of the other includable corporations.

(2) FILING TEST. In order to be eligible for this election, each member must be a financial institution as defined in Section 40-16-1 and be required to file an excise tax return under this chapter.

(d) To the extent operating rules are required for the filing of a consolidated excise tax return, the consolidated return regulations of the Internal Revenue Code and the principles contained therein would shall be used as a guideline in the absence of clarifying regulations issued rules adopted by the Department of Revenue.

(e) Any election to file an Alabama consolidated excise tax return pursuant to this section shall be binding on both the Department of Revenue and the Alabama qualified corporate group for a period of not less than ten (10) taxable years, except that the election shall terminate automatically upon the revocation or termination of its federal consolidated return election.

(f) Returns filed inconsistent with this election shall be considered delinquent and subject to the penalties imposed by Section 40-2A-11.

(e)(g) The Department of Revenue may make adopt such reasonable rules and regulations as it may deem necessary to determine the whether businesses business conducted and in the this state is properly classified as a financial institution under this chapter which are subject to said excise tax and to determine the net income of such businesses business by which said tax is to be measured; provided, that any financial institution conducting a business both within and without the State of Alabama and coming within the provisions of this chapter shall be required to make a report to the Department of Revenue showing the amount of its income received from the business conducted by it within the State of Alabama and the expenses incurred by it in the conduct of its business within the State of Alabama. Failure to file any such return on or before the due date thereof in the absence of extension of time in writing for the filing thereof granted by the Department of Revenue shall subject the financial institution so failing to a penalty of 15 percent of the amount of tax assessed, which amount shall be assessed and collected as a part of the tax, and a like penalty of $5 per day for each day's failure to file such return, which penalty shall be collected by civil action.

§40-16-6.

(a) The remittance of the excise tax required due under this chapter shall be made to the Department of Revenue at Montgomery, Alabama, with checks payable to the State Treasurer of Alabama Department of Revenue.

(b) The proceeds of the excise tax herein imposed by this chapter shall be, without delay, deposited into the State Treasury to the credit of the Financial Institution Excise Tax Fund. The amount of money appropriated for each fiscal year by the Legislature to the Department of Revenue with which to pay the salaries, the cost of operation, and the management of the department shall be deducted, as a first charge, from the taxes collected pursuant to Section 40-16-4; provided, that the expenditure of money so appropriated shall be budgeted and allotted pursuant to Article 4 of Chapter 4 of Title 41 and limited only to the amount appropriated with which to defray the expenses of operating the department for each fiscal year.

(c) The excess of the tax levied by this chapter computed using a rate of six and one-half percent and the tax computed using a rate of six percent shall be deposited in the General Fund. The balance of the tax collected, after the payment of refunds, pursuant to Section 40-16-4, shall, on September 1 in each year, be distributed as follows: On certificate of the Department of Revenue the Comptroller shall draw a warrant on the State Treasurer payable to the county treasurer of each of the counties in which the financial institutions are located for an amount equal to one fourth of the tax received from the institutions located in that county, after deducting the proportionate part of the expenses incurred in the administration of this chapter. On similar certificate the Comptroller shall draw a warrant on the State Treasurer in favor of the treasurer of each of the municipalities in which the financial institutions are located for an amount equal to one half of the tax received from the institutions located in those municipalities, after deducting the proportionate part of the expenses incurred in the administration of this chapter. The amount remaining in the Financial Institution Excise Tax Fund, after the payment of the expenses as heretofore in this chapter provided, and after the distribution to the counties and municipalities of their proportionate part of the tax, shall be deposited into the General Fund of the State of Alabama.

(d) Any financial institution which conducts its business in more than one municipality or in more than one county in this state shall, in making the return required by this chapter, report in detail the percentage of its total business in the state conducted in each municipality and in such county, and the portions of tax paid by each such financial institution due to be distributed to the municipality and county shall be distributed pro rata according to the percentage reported to the municipalities and counties where a business is conducted instead of solely to the one where the principal place of business of a financial institution is located in this state.

(e) A financial institution that does not maintain an office in Alabama, but is subject to the tax imposed by Section 40-16-4, is deemed not to be located in any particular county or municipality of the state. Any taxes collected from that institution, after payment of refunds, and after deduction for a proportionate part of the expense incurred in the administration of this chapter, shall be deposited into the State General Fund on or before September 1 of each year.

(b) The Department of Revenue shall promptly distribute the balance of financial institution excise tax revenue, net of refunds, as of the close of each calendar quarter, with fifty percent (50%) of the revenue distributed to the general fund, thirty three and three tenths percent (33.3%) distributed to municipalities and the remaining sixteen and seven tenths percent (16.7%) distributed to counties.

(c) Total municipal financial institution excise tax revenue shall be distributed among the municipalities based on each municipality’s share of total Alabama municipal population as determined in the most recent federal census prior to the distribution.

(d) The first twenty percent (20%) of total county financial institution excise tax revenue shall be distributed equally among all counties. The remaining eighty percent (80%) of county financial institution excise tax revenue shall be distributed among the counties based on each county’s share of total Alabama population as determined in the most recent federal census prior to the distribution.

(f)(e) No municipality or county within the state may levy or assess any excise tax for the privilege of engaging in a business in addition to that levied and distributed to it as herein provided, except license taxes. However, license taxes on banks shall not be levied in excess of those which may be legally levied pursuant to Section 11-51-130, provided however, that the license authorized by subdivisions (1) to (12), inclusive, of subsection (a) of Section 11-51-130 may be levied only by the municipality where the bank has its principal place of business."

Section 3

The following sections are hereby added to the Code of Alabama 1975, to read as follows: §40-16-1.2. (a) The following items shall be added to federal taxable income for purposes of computing net income under this chapter: (1) The tax due under this chapter that is deducted in computing federal taxable income. (2) State and local taxes that are deducted for purposes of calculating federal taxable income for which a credit is claimed under Section 40-16-8, to the extent such credit is utilized to reduce the tax owed under this chapter. (3) Refunds of federal income taxes deducted in prior tax periods for purposes of computing the tax due under this chapter. (4) Dividends received from a corporation in which the taxpayer owns less than twenty percent (20%) of the stock (by vote and value), but only to the extent such dividends are properly deducted in computing taxable income for federal income tax purposes. (5) State, county, and municipal interest income from loans and securities that is exempt for federal income tax purposes. (6) Any interest that was treated as paid or incurred in the current taxable year under 26 U.S.C. § 163(j)(2). (7) The amount of foreign-derived intangible income and global intangible low-taxed income that was deducted under .S.C. § 250. (8) The amount of any capital loss carryback or carryforward deducted for federal income tax purposes. (b) The following items shall be deducted from federal taxable income for purposes of computing net income under this chapter: (1) Refunds of the tax due under this chapter that are included in computing federal taxable income. (2) Federal income taxes paid or accrued during the taxpayer’s taxable year in accordance with the taxpayer’s method of accounting. (3) If the taxpayer owns twenty percent (20%) or more of the stock, by vote or value, of the distributing corporation, dividend income, including amounts described in 26 U.S.C. § 951, from non-U.S. corporations to the same extent such dividend income would be deductible under 26 U.S.C. § 243 if received from U.S. corporations. (4) Federal Deposit Insurance Corporation (FDIC) insurance premiums not deductible for federal income tax purposes under 26 U.S.C. § 162(r). (5) Interest not deductible for federal income tax purposes under 26 U.S.C. § 163(j)(1). (6) Interest not deductible for federal income tax purposes under 26 U.S.C. §§ 265 or 291 related to tax-exempt securities. (7) The amount of global intangible low-taxed income that is included in the gross income of such financial institution under 26 U.S.C. § 951A. (8) The amount treated as dividends under 26 U.S.C. § 78. (9) Expenses otherwise deductible that were not deducted for federal income tax purposes as a result of an election to claim a federal income tax credit for those expenses. (10) Solely with respect to credit unions, the amount paid out as dividends on the withdrawable shares of such credit union. (11) The amount of otherwise deductible capital losses incurred during the taxable year that were not deducted for federal income tax purposes. (c) Nothing in this section shall be construed to allow any item to be deducted more than once or to allow a deduction for any item that is excluded from income or to allow any item to be included in the Alabama net income of more than one taxpayer. §40-16-5.1. (a) Financial institutions shall pay estimated financial institution excise tax in accordance with 26 U.S.C. § 6655, except the provisions of 26 U.S.C. § 6655(g)(1)(A)(ii) through (iii) shall not apply. The balance of the tax owed, after reduction by the credits allowed by this chapter, and by prior payments including estimated payments as provided in this section, shall be due and paid at the same time as the due date of an original return. (b) For the purposes of this section: (1) Section 40-16-4 shall be substituted when 26 U.S.C. § 6655 refers to chapter 1; (2) Section 40-16-4 shall be substituted when 26 U.S.C. § 6655 refers to section 11; (3) The terms section 1201(a) and subchapter L of chapter 1 referred to in 26 U.S.C. § 6655(g)(1)(A)(i) shall be ignored for Alabama excise tax purposes; (4) Section 40-16-8 shall be substituted when 26 U.S.C. § 6655(g)(1)(B) refers to part IV of subchapter A of chapter 1; (5) The term carrybacks referred to in 26 U.S.C. § 6655(g)(2)(B)(iii) shall be ignored for Alabama excise tax purposes; (6) Commissioner shall be substituted when 26 U.S.C. § 6655 refers to Secretary. §40-16-10. (a) In computing the net income of financial institutions subject to the tax imposed by this chapter, there shall be allowed, in addition to the deductions specified therein, a deduction for the sum of the net operating losses which may be carried forward to the taxable year for which the net income of the financial institution is being computed. (1) The term "net operating loss" for the purposes of this chapter means the amount by which net income of the financial institution (before the deduction allowed by this section) with respect to a taxable year is less than zero. For purposes of this section, the financial institution’s net income shall be determined under the provisions of this chapter applicable to the year in which the net operating loss arises. (2) A net operating loss shall be carried forward to the earliest subsequent taxable year in which the financial institution has net income greater than zero (determined without taking into account the deduction allowed by this subsection). The amount of a net operating loss which may be carried to any later taxable year shall be the excess of the net operating loss over the sum of the amounts thereof deductible under this subsection in all the taxable years preceding this taxable year. (3) If net operating losses arising in more than one taxable year can be carried forward to a taxable year of the financial institution, the net operating loss arising from the earliest of those years shall be deducted first. (4) The net operating loss allowed by this section shall be limited to sources attributable to Alabama, as determined by applying the allocation and apportionment methodology in the year in which the loss arose pursuant to Section 40-16-4. (5) A net operating loss may be carried forward and deducted only during the 15 consecutive tax years immediately following the tax year in which it arose. (b) In the case of a financial institution classified as an acquiring corporation within the meaning of .S.C. § 381, or in the case of a financial institution classified as a new loss corporation within the meaning of 26 U.S.C. § 382, or in the case of the recognized built-in gains of a financial institution classified as a gain corporation within the meaning of 26 U.S.C. § 384, only the net operating losses as are allowable in accordance with 26 U.S.C. §§ 381, 382, and 384 shall be allowed as a deduction under this section. This subsection shall be applied before the limitations in the preceding subsection are applied. (c) Net operating losses incurred by members of a qualified corporate group, as defined in Section 40-16-3(c), (including those net operating losses described in subsection (b)) shall be deducted in the following order: (1) Net operating losses shall be carried forward only on account of the member which incurs the loss (including any prior year net operating losses allocated from the parent under subparagraph (c)(2), which subsequently became part of the member’s loss carryforward) and shall be deducted prior to consolidating any resulting taxable income with the other members’ income on the consolidated return under Section 40-16-3(b). Any remaining net operating losses of the member shall be carried forward in accordance with this section. (2) Any current year net operating losses of the parent of a qualified corporate group, as defined in Section 40-16-3(c), shall be allocated among the other members of the qualified corporate group based on the percentage which the gross assets of each member of the qualified corporate group bears to the total gross assets of all members of the qualified corporate group (excluding the parent of a qualified corporate group), and shall be deducted prior to consolidating any resulting taxable income with the other members’ income on the consolidated return under Section 40-16-3(b). To the extent this loss described in the preceding sentence creates or increases a loss for a member, such loss becomes part of that member’s net operating loss carryforward from the year of such allocation. §40-16-11. This section provides for transition rules for the implementation of the Financial Institution Excise Tax Reform Act. (a) This Act imposes for the first time a system of prepaid estimated tax payments patterned after the federal system and transitions the Financial Institution Excise Tax from the current post-payment system. To account for this transition, the Department of Revenue shall waive both penalties and interest attributable to underpayments of estimated tax payments occurring within the first two applicable tax years and not attributable to an intentional disregard of the law. (b) This act's conformity of the depreciation deduction allowed in the calculation of the tax due under this chapter with the corollary deduction allowed for federal income tax purposes, as well as this act's express rejection of the federal Tax Cuts and Jobs Act of 2017's (i)limitations on the deductibility of Federal Deposit Insurance Corporation premiums under 26 U.S.C. § 162(r), (ii) limitations on the deductibility of certain interest under 26 U.S.C. § 163(j), and (iii) inclusion of global intangible low-taxed income (GILTI) under 26 U.S.C. § 951A and deduction of foreign-derived intangible income and GILTI under 26 U.S.C. § 250, are merely a clarification of existing law and shall apply retroactively to all open tax years. (c) The enactment of Section 40-16-10 extends the carryforward period for net operating losses to a maximum of fifteen tax years, while eliminating the financial institution’s ability to carry back net operating losses to the prior two tax years. The fifteen tax year carryforward period shall only apply to net operating losses incurred in tax years beginning after December 31, 2019. The clarification of the ordering rules applicable to net operating losses provided by Section 40-16-10(c) shall apply to all open tax years. (d) In addition to the deductions from federal taxable income provided by Section 40-16-1.2(b), subject to the limitation provided by Section 40-16-1.2(c), a financial institution may deduct the applicable percentage of dividend income from a Captive REIT if such dividend income would be deductible under 26 U.S.C. § 243 if received from an entity that is not a REIT, as defined in Section 40-18-1(27). For purposes of this subsection (d), a “Captive REIT” shall include any REIT, as defined in Section 40-18-1(27), whose shares or certificates of beneficial interest are not regularly traded on an established securities market and are owned or controlled, at any time during the last half of the tax year, by an association taxable as a corporation that is not exempt from tax under 26 U.S.C. § 501(a) or a REIT, as defined in Section 40-18-1(27). For purposes of the definition of Captive REIT in this subsection (d), own or control means to own or control directly, indirectly, beneficially, or constructively more than fifty percent (50%) of the voting power or value of an entity, applying the attribution rules of 26 U.S.C. § 318, as modified by 26 U.S.C. § 856(d)(5), in determining ownership and control. For purposes of this subsection (d), the “applicable percentage” shall be (i) one hundred percent (100%) for tax years beginning after December 31, 2019 and before January 1, 2021, (ii) eighty percent (80%) for tax years beginning after December 31, 2020 and before January 1, 2022, (iii) sixty percent (60%) for tax years beginning after December 31, 2021 and before January 1, 2023, (iv) forty percent (40%) for tax years beginning after December 31, 2022 and before January 1, 2024, (v) twenty percent (20%) for tax years beginning after December 31, 2023 and before January 1, 2025; (vi) and zero percent (0%) for tax years beginning after December 31, 2024. (e) Not withstanding the distribution formula provided for in 40-16-6 (c), municipal financial institution excise tax distributions made in 2019-2023 shall be distributed as follows: (1) For the financial institution excise tax distribution made in 2019, each municipality shall receive a percentage share of the total municipal financial institution excise tax revenue equal to its percentage share of total municipal financial institution revenue distributed over the five years ending in 2018. (2) For the quarterly financial institution excise tax distributions made in 2020, seventy five percent (75%) of the municipal financial institution excise tax revenue shall be distributed based on each municipality’s percentage share of total municipal financial institution revenue distributed over the five years ending in 2018. The remaining twenty five percent (25%) shall be distributed based on the population formula in Section 40-16-6(c). (3) For the quarterly financial institution excise tax distributions made in 2021, fifty percent (50%) of the municipal financial institution excise tax revenue shall be distributed based on each municipality’s percentage share of total municipal financial institution revenue distributed over the five years ending in 2018. The remaining fifty percent (50%) shall be distributed based on the population formula in Section 40-16-6 (c). (4) For the quarterly financial institution excise tax distributions made in 2022, twenty five percent (25%) of the municipal financial institution excise tax revenue shall be distributed based on each municipality’s percentage share of total municipal financial institution revenue distributed over the five years ending in 2018. The remaining seventy five percent (75%) shall be distributed based on the population formula in Section 40-16-6(c). (5) Beginning with the first quarter of 2023, and for all future quarterly financial institution excise tax distributions, one hundred percent (100%) of the municipal financial institution excise tax revenue shall be distributed based on the population formula in Section 40-16-6(c).

Section 4

Section 40-16-5, Code of Alabama 1975, is hereby repealed in its entirety.

Section 5

This act shall become effective January 1, 2020, following its passage and approval by the Governor, or upon its otherwise becoming law. This act shall become operative for tax years beginning after December 31, 2019, except as provided in the new Section 40-16-11.