HB588 Alabama 2021 Session

Summary

Primary Sponsor

Connie C. Rowe

Republican

Session

Regular Session 2021

Title

Income taxation, credit to owner, member, partner, shareholder of pass-through entity

Summary

HB588 provides a refundable Alabama income tax credit for owners of electing pass-through entities and updates Growing Alabama and Alabama Jobs Act tax credits and related rules.

What This Bill Does

For tax years starting in 2021, owners, members, partners, or shareholders of electing pass-through entities receive a refundable credit equal to their pro rata share of the entity’s Alabama income tax paid. The bill expands the Growing Alabama Credit with a $20 million annual cap, limits the credit to no more than 50% of tax liability, allows online claiming and donations to approved economic development organizations, and sets rules for carrying forward and transferring credits. It also preserves an investment credit under the Alabama Jobs Act of 1.5% of capital investment for incentivized companies, which can offset several taxes and be allocated among owners or transferred under specified conditions, with carryforward up to five years. Additional updates clarify how these credits interact with distributions, require rules from the Department of Revenue and Department of Finance, and provide a one-time waiver of estimated tax penalties for the 2021 quarter due date due to retroactive timing.

Who It Affects

• Owners, members, partners, or shareholders of electing pass-through entities who would receive a refundable credit based on their share of the entity’s Alabama income tax paid.
• Taxpayers participating in Growing Alabama and Alabama Jobs Act credits (including incentivized companies, donors to approved economic development organizations, and their owners) who can offset various state taxes, allocate or transfer credits under set rules, and carry credits forward.

Key Provisions

• Refundable pass-through credit: for tax years 2021+, owner/member/partner/shareholder of an electing pass-through entity gets a refundable credit equal to their pro rata share of the entity’s Alabama income tax paid.
• Growing Alabama Credit changes: up to $20 million in credits per year; credit may reduce tax liability by up to 50%; unused credits carry forward up to five years; online system for claiming and donations to approved economic development organizations; at least 25% of funds reserved for targeted/jumpstart counties; credits tied to verified contributions and cannot be deducted elsewhere; transfer and recipient rules with oversight by the Department of Commerce/Finance to protect fund distributions.
• Alabama Jobs Act investment credit: incentivized companies may claim 1.5% of capital investment as a credit against specified taxes (income, financial institution excise, insurance premium, state license taxes); credit may be allocated among owners, transferred under approval, and carried forward up to five years; transferees can offset their taxes; default by the incentivized company can trigger liability for underpayment.
• Administration and effective dates: Department of Revenue/Commerce to adopt implementing rules; estimated tax penalty waivers for the 2021 quarter due date due to retroactive timing; certain sections become effective for tax years beginning 2021 or immediately upon law.

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