Governor Bentley Begins Process of Closing Tax Loopholes

MONTGOMERY— Governor Robert Bentley today announced that he had begun the administrative process of closing business income tax loopholes. The Department of Revenue has submitted for publication a proposed rule known as the Gross Income Tax Regulation, which will address a loophole in our current tax law that allows multi-state businesses to avoid paying taxes on income earned in Alabama. 

The Department of Revenue expects that this administrative change will generate approximately $30 million for the 2012 Education Trust Fund budget, and approximately $17 million per year thereafter.

“This is an issue of tax fairness,” Governor Bentley said. “The loophole that we are closing is only available to certain types of multi-state companies, and these companies ought to pay their fair share of taxes just like everyone else in Alabama. The revenues generated by closing these loopholes will allow the Legislature to increase funds to local school systems to help replace some of the lost federal stimulus dollars.”

The loophole in the tax structure allows multi-state businesses to take advantage of the federal income tax deduction in Alabama by deducting taxes paid on 100-percent of the company’s income, regardless of how much of that income they report as being taxable in Alabama. As a result of the loophole, companies are deducting federal income taxes paid on income which in many cases should be taxable in Alabama, but is not. Alabama is the only state in the country that allows multi-state businesses to do this.

The Department of Revenue’s proposed regulation would equalize the reporting of income and deductions and eliminate the distortion caused by the current unequal treatment.  

Public notice of the proposed changes is being published this week.  A public comment period will run through May 6, 2011. The Alabama Revenue Department will hold a public Rule-Making Hearing on Thursday May 5, 2011 to consider comments and suggestions to the proposed regulation.