Current through Register Vol. 42, No. 11, August 30, 2024
(1) For
purposes of Chapter 18 of Title 40, Code of Ala. 1975,
when the legislature adopts a specified section or sections of Title 26, United
States Code ("26 U.S.C." or "IRC") or a federal public law (Pub. L. or P.L.),
references shall be to those specified sections as amended from time to
time.
(2) When any gain, loss,
income, basis, earnings and profits, or any other item is to be determined in
accordance with the provisions of federal law (Title 26, United States Code or
public law) which have been adopted, by reference or otherwise, into Alabama
law, such computations shall be applied using the principles provided in the
pertinent federal laws and regulations.
(3) Federal rules applied on a
separate-company basis. Section
40-18-33,
Code of Ala. 1975, adopts federal taxable income as
the starting point in calculating a corporation's Alabama taxable income.
(a) "Federal taxable income" means federal
taxable income calculated on a separate-company basis using federal
principles.
(b) A corporate income
taxpayer that files as part of a federal consolidated return must determine its
federal taxable income on a separate-company basis. In doing so, they must
apply the principles of certain federal rules that were applied at the group
level in the calculation of federal consolidated income on a separate-company
basis.
1. Example. Federal law allows a
domestic activities production deduction (DPAD) in the calculation of federal
taxable income for corporations that manufacture or produce their goods in the
United States. A corporation filing as part of a federal consolidated return
may be attributed a portion of a DPAD earned by the federal consolidated group.
However, a corporation must determine its DPAD for Alabama tax purposes without
regard to the activities and tax attributes of the larger federal consolidated
group. See GKN Westland Aerospace, Inc. v. Alabama Department
of
Revenue, Alabama Department of Revenue,
Administrative Law Division, Dkt. No. BIT 10-988, July 25, 2011.
(b) Alabama law requires
modifications to federal taxable income in calculating Alabama taxable income.
Such modifications should not affect the calculation of federal taxable income
as defined by this paragraph. See
Sherwin-Williams
Co.
v. Alabama Department of Revenue, Alabama Tax Tribunal, Dkt. Nos. BIT
13-359 and BIT 11-741, Nov. 30, 2016.
1.
Example. Taxpayers are required to add back to federal taxable income certain
inter-company transactions pursuant to Section
40-18-35(b),
Code of Alabama 1975. This modification will not
affect the calculation of federal taxable income as defined by this
paragraph
(c)
Adjustments to Federal Limitations. Alabama's income tax laws are tied to
various federal income tax limitations. Certain fundamental differences in the
calculation of federal taxable income and Alabama taxable income require that
adjustments be made to the federal limitation before they can be used in the
calculation of Alabama taxable income as described below.
1. Federal limitations calculated at the
corporate consolidated group level and used in the calculation of consolidated
federal taxable income for the corporate group must be adjusted to reflect the
fact that Alabama corporate taxpayers, even those participating in the filing
of a post 2001 Alabama consolidated return, must calculate Alabama taxable
income on a separate-company basis. For this reason, federal limitations
applicable in the calculation of Alabama corporate taxable income must be
calculated on a separate-entity basis.
(i)
Example. Contributing Corporation C, a member of a federal affiliated group
filing a consolidated federal corporate income tax return, contributes $10 to
the American Red Cross, which is a qualifying charitable contribution under IRC
§170(c) and is the group's only such charitable contribution that year.
Contributing Corporation C has $20 of separate-company federal taxable income
before the contribution deduction, but the group has $200 of taxable income
before the contribution deduction. Because the ten percent (10%) charitable
contribution deduction limitation of IRC §170(b)(2) is calculated at the
group level for corporations filing federal consolidated returns, Contributing
Corporation C' s contribution deduction is not limited for federal purposes.
However, because Alabama tax law requires separate company calculations, for
purposes of calculating Contributing Corporation C' s Alabama taxable income,
only $2 ($20 x 10%) of the $10 contribution is deductible. The remaining $8
contribution may be carried forward under the federal carry-forward
rules.
(4)
Federal limitations
subject to allocation and apportionment. Federal
limitations are calculated without regard to allocation and apportionment,
which are state income tax concepts that have no counterpart in the federal
income tax system. Federal limitations must be adjusted to reflect the fact
that Alabama multistate taxpayers must calculate Alabama taxable income on a
post-allocation and apportionment basis. For this reason, federal limitations
applicable in the calculation of the Alabama taxable income of multistate
taxpayers must be calculated on a post-allocation and apportionment basis.
(a) Example. Alabama's net operating loss
(NOL) rules are tied to IRC §382, a federal limitation to the utilization
of NOLs. See Code of Ala. 1975, §
40-18-35.1(6).
When a loss corporation experiences an ownership change and the provisions of
IRC §382 apply, the Alabama apportionment factor of the loss corporation
for the reporting period including the ownership change must be used to compute
the IRC section 382 limitation applicable to Alabama multi-state taxpayers. For
example, Loss Corporation L experiences an ownership change that triggers an
IRC §382 limitation. The annual federal limitation is $10. For the
reporting period including the ownership change Loss Corporation L's Alabama
apportionment factor is twenty percent (20%). The federal limitation of $10
must be apportioned to Alabama using Loss Corporation L's Alabama apportionment
factor of 20%, creating an Alabama limitation of $2.
Rule No. changed from 810-3-1A-.01 to 810-3-1.1-01 by
amendment filed July 27, 1988.
Author: Joe Garrett, Holly H. Coon
Statutory Authority:
Code of Ala.
1975, §§
40-2A-7(a)(5),
40-18-1.1,
40-18-33,
40-18-35.1.
