Alabama House Bill HB418

Alabama 2022 Regular Session

• Introduced: 3/1/22
• Refer: 3/1/22

Caption

Relating to corporate income tax deductions, providing business interest expense deduction limitations, to provide a deduction equal to the business interest expense disallowed on the federal income tax return as a result of 26 U.S.C. Section 163 (j), Sec. 40-18-39.1 repealed.

Impact

The revision in state tax law introduced by HB 418 is significant for Alabama corporations and certain pass-through entities, including S corporations. By removing the state-level deductions limitation, it opens the door for these entities to benefit from more favorable tax treatment in line with federal standards. Businesses stand to gain increased cash flow as the limits on interest deductions are lifted, which may also encourage investment and expansion. This legislative change reflects an ongoing effort to foster a more business-friendly environment within the state, potentially making Alabama more competitive in attracting and retaining businesses.

Summary

House Bill 418 aims to amend the Alabama income tax code by repealing Section 40-18-39.1, which previously imposed limitations on business interest expense deductions. Specifically, the bill seeks to align state tax provisions with federal regulations under 26 U.S.C. § 163(j), which limits the amount of business interest deductions that can be claimed on federal returns. Through this repeal, businesses within Alabama would be allowed to deduct interest expenses disallowed on their federal income tax returns, potentially enhancing their financial positions and stimulating economic activity in the state.

Contention

While proponents of the bill argue that it will provide essential tax relief, improve business cash flow, and align state tax policy with federal law, there may still be contention from various stakeholders. Critics could voice concerns that such deductions primarily benefit larger corporations at the expense of smaller businesses or contribute to revenue losses for the state. Moreover, there may be apprehensions regarding the implications of increasing state conformity with federal tax law, especially considering how such alignment can affect state revenue and local funding mechanisms.