HB159 By Representatives Lipscomb, South, Blackshear, Estes, Sullivan, Kitchens, Whitt, Isbell, Crawford and Lawrence RFD Financial Services Rd 1 06-FEB-20

SYNOPSIS: Under current law, a financial institution doing business in Alabama is subject to the Alabama financial institution excise tax. Financial institutions operating in Alabama and other states are required to allocate and apportion their income to Alabama.

This bill will clarify the calculation of taxable income for credit unions under the Alabama financial institution excise tax law and would further provide for assessments and refunds.

A BILL TO BE ENTITLED AN ACT

Relating to financial institution excise tax; to update existing law to provide clarification on the calculation of taxable income for credit unions; and to further provide for assessments and refunds.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Section 40-16-1.3, Code of Alabama 1975 as enacted by Act 2019-284 of the 2019 Regular Session is amended to read as follows:

§40-16-1.3.

"(a) With respect to credit unions only, net income means financial statement income which is the final net income amount, total revenue less total expenses, calculated for financial statement purposes and reported to the Internal Revenue Service as a tax exempt organization and to the Alabama Credit Union Administration (ACUA) or other government regulatory authority as appropriate, less the subtractions specified in subsection (b) and as allocated and apportioned to Alabama according to rules adopted by the Department of Revenue pursuant to Section 40-16-4.

"(b) Subtractions. The following items shall be subtracted from financial statement income for purposes of computing the net income of a credit union under this chapter:

"(1) Dividends received from other credit unions and credit union service organizations as defined by federal law and the regulations of the National Credit Union Administration.

"(2) In lieu of deductions for losses or bad debts, reasonable additions to reserves for losses, bad debts, and extraordinary expenses. Reasonable additions to regular reserves as defined by the Capital Preservation Plan approved by each credit union’s Board of Directors annually and accepted by the ACUA pursuant to ACUA regulations pertaining to Capital Preservation Plans. Upon withdrawal or reduction of such reserves the amount withdrawn or reduced shall be included in the calculation of taxable income for the tax year in which the withdrawal occurs. Provided that, direct transfers between reserve accounts, including the allowance for loan losses, that are not included in the calculation of net income shall not be includible in the calculation of taxable income.

"(c) Nothing in this section shall be construed to allow:

"(1) Any item to be deducted more than once.

"(2) A deduction for any item that is excluded from income.

"(3) Any item to be included in the Alabama net income of more than one taxpayer.

"(d) No assessments of Financial Institution Excise Tax shall be entered or issued and no refunds shall be granted or paid for tax years ending on or before January 1, 2020 to adjust the amounts subtracted from net income of credit unions for additions to reserves, as previously provided in this section. Further, such amount included in any assessment entered prior to the effective date of this act shall be void and unenforceable and shall be withdrawn or dismissed with prejudice by the department, and any such refund petitions filed prior to the effective date of this act shall be denied by the department."

Section 2. This act shall become operative for tax years beginning after December 31, 2019.

Section 3. This act shall become effective January 1, 2020, following its passage and approval by the Governor, or upon its otherwise becoming law.

Banks and Banking

Financial Institution Excise Tax

Taxation

Credit Unions

Acts Amended

Code Amended