Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-3-1.1 - OPERATING RULES › Section 810-3-1.1-.01 - Operating Rules

Current through Register Vol. 42, No. 9, June 28, 2024
(1) For
			 purposes of Chapter 18 of Title 40,
Code of Ala. 1975
,
			 when the legislature adopts a specified section or sections of Title 26, United
			 States Code ("26 U.S.C." or "IRC") or a federal public law (Pub. L. or P.L.),
			 references shall be to those specified sections as amended from time to
			 time.
(2) When any gain, loss,
			 income, basis, earnings and profits, or any other item is to be determined in
			 accordance with the provisions of federal law (Title 26, United States Code or
			 public law) which have been adopted, by reference or otherwise, into Alabama
			 law, such computations shall be applied using the principles provided in the
			 pertinent federal laws and regulations.
(3) Federal rules applied on a
			 separate-company basis. Section
			 40-18-33,
Code of Ala. 1975
, adopts federal taxable income as
			 the starting point in calculating a corporation's Alabama taxable income.
(a) "Federal taxable income" means federal
			 taxable income calculated on a separate-company basis using federal
			 principles.
(b) A corporate income
			 taxpayer that files as part of a federal consolidated return must determine its
			 federal taxable income on a separate-company basis. In doing so, they must
			 apply the principles of certain federal rules that were applied at the group
			 level in the calculation of federal consolidated income on a separate-company
			 basis.
1. Example. Federal law allows a
			 domestic activities production deduction (DPAD) in the calculation of federal
			 taxable income for corporations that manufacture or produce their goods in the
			 United States. A corporation filing as part of a federal consolidated return
			 may be attributed a portion of a DPAD earned by the federal consolidated group.
			 However, a corporation must determine its DPAD for Alabama tax purposes without
			 regard to the activities and tax attributes of the larger federal consolidated
			 group. See
GKN Westland Aerospace, Inc. v. Alabama Department
			 of
Revenue,
Alabama Department of Revenue,
			 Administrative Law Division, Dkt. No. BIT 10-988, July 25, 2011.
(b) Alabama law requires
			 modifications to federal taxable income in calculating Alabama taxable income.
			 Such modifications should not affect the calculation of federal taxable income
			 as defined by this paragraph. See
Sherwin-Williams
Co.
			 v. Alabama Department of Revenue,
Alabama Tax Tribunal, Dkt. Nos. BIT
			 13-359 and BIT 11-741, Nov. 30, 2016.
1.
			 Example. Taxpayers are required to add back to federal taxable income certain
			 inter-company transactions pursuant to Section
			 40-18-35(b),
Code of Alabama 1975
. This modification will not
			 affect the calculation of federal taxable income as defined by this
			 paragraph
(c)
			 Adjustments to Federal Limitations. Alabama's income tax laws are tied to
			 various federal income tax limitations. Certain fundamental differences in the
			 calculation of federal taxable income and Alabama taxable income require that
			 adjustments be made to the federal limitation before they can be used in the
			 calculation of Alabama taxable income as described below.
1. Federal limitations calculated at the
			 corporate consolidated group level and used in the calculation of consolidated
			 federal taxable income for the corporate group must be adjusted to reflect the
			 fact that Alabama corporate taxpayers, even those participating in the filing
			 of a post 2001 Alabama consolidated return, must calculate Alabama taxable
			 income on a separate-company basis. For this reason, federal limitations
			 applicable in the calculation of Alabama corporate taxable income must be
			 calculated on a separate-entity basis.
(i)
			 Example. Contributing Corporation C, a member of a federal affiliated group
			 filing a consolidated federal corporate income tax return, contributes $10 to
			 the American Red Cross, which is a qualifying charitable contribution under IRC
			 §170(c) and is the group's only such charitable contribution that year.
			 Contributing Corporation C has $20 of separate-company federal taxable income
			 before the contribution deduction, but the group has $200 of taxable income
			 before the contribution deduction. Because the ten percent (10%) charitable
			 contribution deduction limitation of IRC §170(b)(2) is calculated at the
			 group level for corporations filing federal consolidated returns, Contributing
			 Corporation C' s contribution deduction is not limited for federal purposes.
			 However, because Alabama tax law requires separate company calculations, for
			 purposes of calculating Contributing Corporation C' s Alabama taxable income,
			 only $2 ($20 x 10%) of the $10 contribution is deductible. The remaining $8
			 contribution may be carried forward under the federal carry-forward
			 rules.