USA - ALABAMA Law and Practice Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser and Katie Sinclair, Dentons
to the county probate court at the time the instrument is presented to the probate court for recording. This form must include either proof of the actual purchase price (if the property is being sold) or the actual value of the property (which may be evidenced by a licensed appraisal or the assessor’s current value for the property). Income Tax Alabama imposes an income tax that is similar to the federal income tax system (Section 40-18-1 et seq). The maximum Alabama marginal income tax rate on taxpayers other than C corporations is 5%. The maximum Alabama marginal income tax rate on C corporations is 6.5%. The seller must report the gain on the sale of the real prop - erty in its annual income tax return. Unlike fed - eral income tax law, Alabama’s income tax law does not contain a preferential rate for long-term capital gains. Withholding of Income Tax Alabama imposes a withholding of income tax in connection with sales by non-Alabama resident taxpayers (Section 40-18-86). No withholding is required if the seller is an Alabama resident or a “deemed” resident, provided the seller provides a duly completed affidavit confirming such resi - dency (AL Form NR-AF1). Certain limited types of transactions are exempt from non-resident withholding under Section 40-18-86 (AL Form NR-AF3). If the seller is not an Alabama resident, and if the transaction is not an exempt transaction, the buyer is generally required to withhold either 3% (where the buyer is an individual) or 4% (where the buyer is an entity) of the purchase price. However, if the gain recognized on the sale is less than the purchase price, and the seller provides the buyer with an Affidavit of Seller’s Gain (see
AL Form NR-AF2), the buyer may withhold 3% or 4% of the amount of the gain. If the amount to be withheld, as based on the purchase price or the gain, is greater than the net proceeds of the transfer, then only the net proceeds need to be withheld and remitted by the purchaser. Generally, the net proceeds of the sale are the net payments to the transferor as shown on the closing statement, but “net proceeds” may be calculated in other statutorily prescribed man - ners. See 5.6 Annual Entity Maintenance and Accounting Compliance regarding Business Privilege Tax. 8.2 Mitigation of Tax Liability If the property being conveyed is located in more than one county in Alabama, there is a proce - dure for obtaining an order from the Alabama Department of Revenue (ADOR) to allocate the value of the property being conveyed among the relevant counties, so that the proper recording tax in each county can be determined. 8.3 Municipal Taxes Each municipality is permitted to impose an annual business license tax on business con - ducted within its taxing jurisdiction, including leasing real estate. 8.4 Income Tax Withholding for Foreign Investors Alabama has two withholding regimes related to income taxes attributable to non-Alabama resident taxpayers, including non-US taxpayers. Income Tax Withholding Regime See 8.1 VAT and Sales Tax regarding withhold - ing of income tax. In addition, non-Alabama resident owners of pass-through entities, such as partnerships or S corporations, are subject
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