USA – ALABAMA Law and Practice Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser, Katie Sinclair and Courtney Bradshaw, Dentons
Composite Payment Regime Under the composite payment regime, the pass- through entity files and directly remits taxes to ADOR with respect to the allocable pass-through income of the non-Alabama resident taxpayer, including the share of gain from the sale of real estate by the pass-through entity. 8.5 Tax Benefits Income tax benefits are provided under Ala - bama’s income tax law, which is generally con - sistent with the federal income tax system. In certain circumstances, Alabama law provides for tax incentives with respect to certain qualify - ing investments in the state, such as: • the creation or expansion of industrial or research facilities; • various job credits; • data-processing centres; • the relocation of corporate headquarters; • investments to rehabilitate certain historic structures; and • other qualifying projects. The potential incentives may include abate - ments related to: • income tax;
held 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, though “net proceeds” may be calculated in other statutorily prescribed manners. 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 procedure for obtaining an order from 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 licence 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 to a composite payment regime under Section 40-18-24.2 (relating to partnerships and other “Subchapter K entities” ) and Section 40-18-176 (relating to S corporations).
• state and local sales and use tax; • state and local ad valorem tax; and • state recording taxes.
To qualify for such incentives, the taxpayer must file the required applications and reports, and must be approved by the proper governmental authorities; the approved investment must also comply with additional compliance require - ments. A summary of Alabama’s taxes and tax incentives can be found on the ADOR website.
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