HB353 Alabama 2020 Session

Summary

Primary Sponsor

Danny GarrettRepresentative

Republican

Session

Regular Session 2020

Title

Corporate income tax rate and financial institution excise tax rate, decreased, apportionment factor for corporate income tax rates revised, State income tax decoupled from fed. Tax Cuts and Jobs Act, electing pass-through entities, taxed at entity level, Ala. Business Tax Competitiveness Act, Secs. 40-16-1.2, 40-16-4, 40-18-31, 40-18-34, 40-18-35, 40-27-1 am'd.

Summary

HB353 would cut Alabama's corporate and financial institution taxes, switch to a single-sales-factor tax apportionment, decouple from certain federal tax changes, and let electing pass-through entities be taxed at the entity level.

What This Bill Does

It lowers the financial institution excise tax rate to 4.75% and lowers the corporate income tax rate to 4.75% of taxable income, while removing the federal income tax deduction for these taxes. It changes how corporate income is apportioned from a three-factor formula with a double-weighted sales factor to a single sales factor, and it decouples Alabama's tax from specific 2017 federal TCJA provisions (like GILTI and certain capital/incentive rules) and revises the business interest expense rules. It also creates an Electing Pass-Through Entity that is taxed at the entity level at 3.95%, with owners not liable for the tax, and it adopts the Multistate Tax Compact to harmonize multistate tax rules; some provisions take effect in 2020 while others apply to 2021, with no refunds for pre-2020 years.

Who It Affects

• Financial institutions (banks, credit unions, etc.) by lowering their excise tax rate and eliminating the federal tax deduction.
• Corporate income taxpayers by lowering the rate, eliminating the federal tax deduction, and changing how net income is allocated across states via a single-sales-factor method.
• Electing Pass-Through Entities (e.g., certain S corporations and Subchapter K entities) and their owners, who would be taxed at the entity level at 3.95% and would have specific election/revocation rules and credits.
• Multistate taxpayers and state/local tax administrators due to adoption of the Multistate Tax Compact and associated uniform rules.
• All taxpayers with potential interactions to the TCJA decoupling and interest deduction changes, as these may affect how deductions and credits are calculated.
• The Department of Revenue and Alabama taxpayers seeking to understand changes in apportionment, credits, and credits for taxes paid to other states.

Key Provisions

• Decrease financial institution excise tax rate from 6.5% to 4.75% of net income and repeal the federal income tax deduction for these taxpayers.
• Decrease corporate income tax rate from 6.5% to 4.75% of taxable income and repeal the federal income tax deduction for corporate taxpayers.
• Change corporate apportionment from a three-factor formula with the sales factor double-weighted to a single sales factor.
• Decouple Alabama income tax from certain TCJA provisions (state economic development grant-related contributions and GILTI) and modify how a corporation limits its business interest expense deduction.
• Add back and/or deduct specific items to federal taxable income under Sections 40-16-1.2, 40-16-4, 40-18-31, 40-18-34, and 40-18-35 to compute Alabama net income.
• Create Electing Pass-Through Entity status taxed at the entity level at 3.95% of taxable income, with elections/revocations subject to specific timing and governance requirements, and owners not personally liable for the entity’s tax.
• Provide a tax credit for Electing Pass-Through Entities for taxes paid to other states, and maintain adjusted basis rules for owners.
• Adopt the Multistate Tax Compact to standardize and facilitate multistate taxation, including division of income, uniform regulations, and arbitration mechanisms for apportionment disputes.
• No refunds for tax years ending before January 1, 2020; several provisions become effective for tax years beginning on or after January 1, 2020, with PTE provisions applying to years beginning 2021 and later after constitutional ratification.

AI-generated summary using openai/gpt-5-nano on Feb 22, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Taxation