On Feb. 12, Gov. Kay Ivey signed House Bill (HB) 170, enacting sweeping changes for many Alabama taxpayers, including:
- A change in the method of apportionment of income to a single-sales factor and elimination of throwback
- Decoupling from global intangible low-taxed income (GILTI)
- Conformity with respect to IRC Section 163(j)
- Exclusion of loans received under the federal Paycheck Protection Program (PPP) from Alabama income and deductibility of expenses paid with those funds
- An election for pass-through entities to be taxed at the entity level
Single-sales factor apportionment
HB 170 revises Alabama Code Section 40-27-1 to require apportionment based on a sales-only apportionment formula. The bill also eliminates the throwback rule, which required taxpayers to include sales in the Alabama sales factor if they shipped goods from a location in Alabama to a state where the taxpayer was not subject to taxation or to the U.S. government. These changes are effective for tax years beginning on or after Jan. 1, 2021. The bill retains the current throw out rule, which excludes from the Alabama sales factor sales of services and intangibles to a state where the taxpayer is not taxable.
Generally, the changes to apportionment benefit taxpayers with a presence in the state that have sales to other states, since property and payroll no longer are used in the apportionment of income. Alabama calendar year taxpayers should consider the apportionment changes when computing their 2021 quarterly estimates as well as for quarterly provision purposes.