Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-3-35 - DEDUCTIONS ALLOWED CORPORATIONS GENERALLY
Section 810-3-35-.01 - Federal Income Tax Deduction
Current through Register Vol. 42, No. 11, August 30, 2024
(1) Corporations may deduct federal income taxes (FIT) paid or accrued during the taxable year and attributable to their Alabama income. The amount and method of deduction to be allowed for state income tax purposes is determined by Alabama Department of Revenue rules. See Standard Oil Co. v. State, 55 Ala. App. 103, 313 So. 2d 532, cert, denied, 313 So. 2d 540 (1975).
(2) For an accrual basis taxpayer that does not file as a member of a federal consolidated income tax return and who apportions and/or allocates income within and outside of Alabama: The amount of FIT attributable to Alabama is determined by multiplying the FIT times a fraction, of which the numerator is the taxpayer's income apportioned and/or allocated to Alabama, and the denominator is the taxpayer's total income earned both within and outside Alabama, computed under applicable Alabama law. To the extent a net loss is allocated and/or apportioned to Alabama (the numerator of the fraction is negative), no FIT will be attributed to Alabama.
Example: Company A is an Alabama taxpayer who apportions a percentage of its income within and outside of Alabama. Company A had Federal Taxable income of $200,000 and $40,000 in FIT for the tax year. Company A's income apportioned to Alabama is $50,000. Company W is apportioned 25% or $10,000 of the net federal income tax liability. ($50, 000/$200, 000 = 25% * $40,000 = $10, 000).
(3) For an accrual basis taxpayer that files as a member of a federal consolidated income tax return: The taxpayer shall apportion the consolidated FIT liability only among the members of the group that individually report positive federal taxable income. Each member is apportioned a share of the consolidated FIT based on a fraction, the numerator of which is the member's positive federal taxable income and the denominator of which is the sum total federal taxable income of all members separately reporting positive federal taxable income.
Example: Company A, Company B, and Company C file as part of a consolidated income tax return for federal income tax purposes. Company A is the only member of the consolidated group that files an income tax return in Alabama. The companies have Federal Taxable Incomes of $150,000, -$25,000, and -$350,000, respectively. The consolidated group earned a -$225,000 net loss and paid $0 in FIT for this tax year. Even though Company A earned positive taxable income, no FIT was due on a consolidated basis to be apportioned to Company A and Company A will receive no FIT deduction for the tax period.
Example: Company A, Company B, and Company C filed a consolidated income tax return for federal income tax purposes. The following federal consolidated group paid no regular income tax during the tax year but paid $75,000 in AMT. Company A, Company B, and Company C computed AMTI of $150,000, $125,000 and $100,000 (totaling $375,000), respectively. Company A is apportioned 40% or $30,000 of the AMT liability of the group (150,000/375,000 = 40% * $75, 000 = $30,000).
(4) For Cash basis taxpayers: To the extent the taxpayer does business within and without Alabama, follow the general provisions provided in Paragraph (2) to determine the portion of the taxpayer's FIT that is attributed to Alabama. If the taxpayer files as part of a federal consolidated income tax return, follow the general provisions in Paragraph (3) to calculate the portion of consolidated FIT attributed to the taxpayer. The amount of consolidated FIT allocated to the taxpayer pursuant to Paragraph (3) and/or the amount attributed to Alabama pursuant to Paragraph (2) is based on the actual amount of federal income taxes paid during the tax period. The taxpayer is entitled to a federal income tax deduction, even if the taxpayer earned a net operating loss for the tax period, if actual federal income tax payments were made during the tax period.
Author: Holly H. Coon
Statutory Authority: Code of Ala. 1975, §§ 40-2 A-7(a)(5), 40-18-35.