Pre-filed bill cleans up CARES Act tax issue

Pre-filed bill cleans up CARES Act tax issue

By MARY SELL, Alabama Daily News

The first of several expected bills related to the coronavirus has been filed in the Alabama Legislature for its 2021 session. 

Senate Bill 7, by Sen. Chris Elliott, R-Daphne, would ensure that no money that flowed to Alabamians or businesses through the federal CARES Act is subject to state income tax. As of now, that’s not the case. 

“I’m just trying to make sure that the individual stimulus payments that were made to the individuals are not taxable at the state level, which they currently are according to the Alabama Department of Revenue,” Elliott, R-Daphne, said. “And just as importantly, that the (Paycheck Protection Program) loans to businesses, once they’re forgiven, are not considered taxable income. That could be a lot of money for a business because some got hundreds of thousands of dollars that they then spent to keep their employees on board. But then to have that show up as as revenue would be really pretty rough.”

Alabama Daily News reported in August that if lawmakers don’t act, some Alabamians and businesses would be taxed on CARES Act funds.

According to the ADOR, stimulus payments to individuals and families could potentially affect the calculation of Alabama taxable income because they could change the federal tax deduction. Depending on income level and deductions, some taxpayers would see a change in their Alabama taxable income.

A similar situation exists for thousands of businesses that received the Paycheck Protection Program loans. If employers meet the terms set by the Small Business Administration and the U.S. Department of Treasury, those loans will be forgiven.

According to ADOR, under the federal CARES Act, any amount of a PPP loan that is eligible for debt forgiveness is not subject to federal income tax. But state legislation is needed to ensure that the entire amount of the PPP debt forgiveness would be excluded from Alabama income tax.

Several lawmakers have said they don’t expect opposition to untaxing the CARES Act funds, it’s just a matter of passing the legislation to make Alabama tax code match federal law. Several such bills, including Elliott’s, were filed in the spring session, but died when House leadership said because of COVID-19 complications, it would only pass local bills and ones related to the state’s 2021 budgets.

Sen. Dan Roberts, R-Mountain Brook, in August said he was working with Rep. Danny Garrett, R-Trussville, on legislation that combines the tax exemptions with a previously filed bill to reduce Alabama’s corporate income tax rate and eliminate the federal income tax deduction for businesses. 

Bruce Ely, a partner at the Birmingham-based Bradley Arant law firm, who specializes in tax law, helped write the Roberts/Garrett bill and called it “more comprehensive” than other proposals. 

Rep. Arnold Mooney, R-Birmingham, also filed in May a two-page bill excluding relief funds from state taxes.

“There are a number of other pieces of legislation that may also include what I’ve got filed,” Elliott said. He said he’d support his stand-alone bill being folded into a larger bill, as long as the tax issue is resolved.

“As long as it gets passed, I have got no pride of authorship on this,” Elliott said. “I just want to make sure we take care of our folks and our small businesses. How it gets done and whose name is on it is not my concern.”

The 2021 session begins Feb. 3. Elliott and Ely have both said they wanted tax legislation addressed earlier, possibly in a special session. 

“I will file it on day one if we are called back in,” Elliott said. “The governor should call for a special session to deal with this and other pressing issues but what she does is anybody’s guess.”

Ivey’s office has not ruled out a possible session yet this year, but it now seems unlikely.

Other COVID-19-related legislation expected next year will include Sen. Arthur Orr’s bill offering limited civil immunity from coronavirus-related lawsuits to businesses, non-profits, churches, government entities and other groups.