Changes in Alabama Corporate Income Tax

Last year, Alabama passed laws changing its income tax. On the corporate front, Alabama made the following changes: 1) Multi-state companies must apportion their income on their sales factor only; 2) The throwback rule has been repealed.

States tax the income of companies by apportioning a percentage of their total income. Up until last year, Alabama apportioned income by considering a company’s property, payroll and sales. Now, a business’s sales is the only factor considered in determining Alabama income. Of course, a company must have some connection with a state before subjecting it to taxation. It is possible for some companies to have sales in a state without physical presence or economic nexus, in which case the company’s income may not be taxed in the state where the sale occurred. In the past, Alabama included sales made in another state that were not taxed by that state as Alabama sales. Alabama called this the throwback rule. Fortunately, with the repeal of the throwback rule, Alabama no longer includes these non-taxed sales to other states in their apportionment factor.

Bowman Law Firm, Gene M. Bowman Attorney