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Bradley Arant Boult Cummings LLP 

February, 2021 - Birmingham, Alabama

 

 

Bradley Partner Bruce Ely Quoted in Bloomberg Law on Alabama's Federal COVID-19 Tax Measures

 

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Bradley attorney Bruce Ely was quoted in Bloomberg Law on a tax overhaul bill in Alabama that syncs the state to most tax features of last year's federal pandemic relief laws and offers businesses additional tax benefits to spur the economy. The legislation (HB 170/SB 98) clarifies that forgiven PPP loans won't be treated as taxable income and loan recipients can deduct expenses paid with forgiven loans. The law also retroactively carves Alabama out of the federal tax on income from intangible assets held overseas and establishes a pass-through entity workaround to the $10,000 limit on the deduction for state and local taxes. 

"This is the most sweeping tax reform bill I have seen in over 20 years, and I have been counsel to every reform commission, tax study group, and tax force since 1991," said Ely.

Ely said the legislation enacts several "substantive" changes in tax policy beyond conforming with federal PPP rules: 

  • Exempts COVID-19 stimulus and relief payments provided to individual taxpayers. 
  • Conforms to federal tax code Section 163(j), relating to business interest deductions, and allows members of a consolidated group to offset net business interest expense in one entity against net business income in another. 
  • Converts Alabama's apportionment formula to a single sales factor, compared with the previous double-weighted sales factor, effective retroactively from Jan. 1, 2021.
  • Repeals the "throwback rule," which permitted Alabama to tax so-called "nowhere income" or income from a multistate business that isn't taxed by another state.
  • Decouples from the Section 951A global intangible low-taxed income, or GILTI, provisions of the 2017 tax law, which sought to discourage multinationals from shifting income from intangible assets such as patents and trademarks to low-tax countries. 
  • Permits pass-throughs, including partnerships and S corporations, to avoid the $10,000 SALT cap through workaround structures blessed by the IRS last fall under Notice 2020-75.

The original article, "Alabama Adopts Federal Covid Tax Measures, Other Benefits," appeared in Bloomberg Law on February 12, 2021.


 

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