{"id":1688,"date":"2019-05-09T15:57:18","date_gmt":"2019-05-09T15:57:18","guid":{"rendered":"https:\/\/albanknews.com\/?p=1688"},"modified":"2019-05-09T15:57:18","modified_gmt":"2019-05-09T15:57:18","slug":"federal-tax-reform-highlights-ambiguities-and-compliance-challenges-for-alabama-banks","status":"publish","type":"post","link":"https:\/\/albanknews.com\/?p=1688","title":{"rendered":"Federal Tax Reform Highlights Ambiguities and Compliance Challenges for Alabama Banks"},"content":{"rendered":"

by <\/span>James E. Long, Jr.<\/span><\/a> and <\/span>Bruce P. Ely<\/span><\/a><\/em><\/p>\n

Unlike most states, Alabama exempts financial institutions from its corporate income tax, choosing instead to subject these entities to its financial institution excise tax (\u201cFIET\u201d). While it\u2019s not uncommon for financial institutions to encounter state income tax laws that vary somewhat from those imposed on other businesses, Alabama\u2019s antiquated FIET contains an unusual number of variances from the norm. These variances became particularly evident, and multiplied, as a result of the numerous changes implemented by the landmark Tax Cuts and Jobs Act (\u201cTCJA\u201d) that President Trump signed into law in late December 2017.<\/p>\n

For the most part, the TCJA changes were automatically incorporated into Alabama\u2019s corporate income tax code because the starting point for calculating Alabama corporate taxpayer\u2019s taxable base is federal \u201ctaxable income.\u201d\u00a0 <\/span>On the other hand, Alabama\u2019s FIET is not automatically linked to the definition of federal \u201ctaxable income\u201d and instead the FIET tax base is tied to a series of outdated Internal Revenue Code sections and limited to only a few paragraphs that attempt to define \u201cnet income\u201d as the starting point for the FIET.<\/p>\n

While the Alabama Department of Revenue (\u201cADOR\u201d) and Alabama courts have often relied on federal income tax principles in interpreting the FIET, there are a variety of unique features that must be taken into account when calculating the FIET tax base. The preliminary TCJA impact analysis, published by the ADOR last July, noted that \u201cAlabama has traditionally allowed the items of income reported by the financial institution to be computed similarly to those same items of income addressed in the federal statute, unless there are specific Alabama rules that provide direct guidance on these items. \u2026 Certain items referenced in this document have no direct ties to Alabama law, but for ease of administration Alabama follows the federal provisions.\u201d<\/p>\n

TCJA Changes and Impact on the FIET<\/b><\/span><\/p>\n

The ADOR\u2019s extensive impact analysis noted several of the key changes included in the TCJA and gave its opinion on how those changes should impact the FIET:<\/p>\n