Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-3-21 - CREDIT FOR TAXES PAID ON INCOME FROM SOURCES OUTSIDE THE STATE › Section 810-3-21-.01 - Credit For Taxes Paid To Another State Or Territory

Current through Register Vol. 42, No. 9, June 28, 2024
(1) For all taxable years beginning after the
			 Multistate Tax Compact became effective in 1977, and taxable years beginning
			 before January 1, 1997, resident taxpayers, including individuals, engaged in
			 multistate business in such a manner as a to subject their income to allocation
			 and apportionment provided by the Multistate Tax Compact were not allowed a
			 credit for taxes paid to other states or territories. For tax years beginning
			 after December 31, 1996, resident individuals are not required to allocate and
			 apportion income and the credit for taxes paid to other states and territories,
			 as provided in this section, is allowable for all individuals.
(2) See Reg.
			 810-3-162-.01 for credit allowed to shareholders of an Alabama S corporation for taxes paid
			 by the shareholders to other states on S corporation earnings.
(3) For all individuals with taxable years
			 beginning after December 31, 1996:
(a) Any
			 Alabama resident individual with income from sources outside Alabama which is
			 includable in Alabama gross income and also in another state or a territory of
			 the United States, is entitled to a credit against the income tax due to
			 Alabama, as described below.
1. The amount of
			 credit will be the lesser of the amount of income tax actually paid to another
			 state on the same income, or the tax computed on the same taxable income in the
			 other state using Alabama tax rates.
(i) When
			 income tax is paid to more than one other state, the tax credit must be
			 computed separately for each state.
(ii) When a state allows credits against its
			 tax in lieu of exemptions, the taxable income in that state will be determined
			 after a deduction computed by converting the credit at the lowest rates
			 applicable in that state.
(I) EXAMPLE:
			 Taxpayer, a resident of Alabama, has taxable income in Alabama, in State X and
			 in State Y. Taxpayer is filling a joint return with his spouse.
Tax on
Taxable
Tax on Income at
Taxable Taxable Alabama Credit
Income Income Rates Allowable
State X $9,000.00 $500.00 $373.00 $373.00
State Y 4,000.00 60.00 142.00 60.00
Alabama $23,000.00 1,073.00 $560.00
Total credit allowable 433.00
Total Alabama income tax 1,073.00
Less credit for tax paid to other states 433.00
Tax due Alabama $640.00
(II) EXAMPLE: Taxpayer, a single individual
			 and a resident of Alabama, has gross gambling income of $50,000 and $50,000
			 gambling losses in State A. State A only allows a deduction for a percentage of
			 gambling losses ($30,000 in this example) but Alabama allows a deduction for
			 gambling losses up to the amount of gambling income ($50,000 in this example).
			 Taxpayer pays tax to State A on $20,000 net gambling income but does not pay
			 tax to Alabama on any gambling income. In this situation, there is no credit
			 for tax paid to State A because the new income from gambling on the Alabama
			 return is zero and, therefore, there is no double taxation.
(III) EXAMPLE: Same situation as (II) above,
			 except gambling losses are $40,000, with a net taxable income from gambling of
			 $10,000 on the Alabama return and $20,000 in State A. In this instance, the
			 credit allowed will be the lesser of tax at the Alabama rate on $10,000 or tax
			 in State A on $10,000. Credit is allowed for tax on $10,000 only because this
			 is the amount of income that otherwise would be subject to double taxation
			 without the credit.
(2) Credit for taxes paid
			 other states will be administratively applied as if payment were made on the
			 due date of the applicable return against any liability due Alabama. The amount
			 of any estimated taxes due under §
													40-18-82 will be reduced by the amount of any credit allowed under this
			 regulation.