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Enacted on February 12, H.B. 170 makes significant changes to Alabama’s income tax, including the following effective for tax years beginning on or after January 1, 2021:

  • single-sales factor apportionment;
  • throwback repeal;
  • specified treatment for calculating Section 163(j) limitations
  • implementation of an elective pass-through entity tax.

Additionally, the state decouples from GILTI income inclusions retroactive to tax years beginning after December 31, 2017.

Alabama taxpayers should be prepared for significant modifications to their Alabama taxable income.  Change to a single-sales factor may benefit in-state taxpayers while out-of-state taxpayers may see an increase in tax.  Throwback repeal and tax relief provisions may provide some Alabama taxpayers with tax relief.  Although certain favorable provisions have retroactive relief, the legislation prohibits refunds for tax years ending before January 1, 2020, to the extent such refunds are related to provisions of the new law.  

With the state’s pass-though entity tax, Alabama joins a growing number of states that have enacted SALT deduction limitation ‘workarounds.’