Alabama Bank Income Tax Bill Deviates From Multistate Model

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By Chris Marr

Alabama’s tax treatment of bank income would diverge from a national model policy that raised industry concerns under legislation moving through the statehouse.

H.B. 263, which the House approved by unanimous vote on March 15, would revise the rules for apportionment of multistate bank income for the purposes of Alabama’s financial institutions excise tax. The bill goes next to the Senate for consideration, where it’s expected to pass.

Current Alabama law calls for the Alabama Department of Revenue to write rules defining how bank income should be apportioned and allocated. The legislation adds a requirement that banks’ credit-card receivables and loans be counted toward the property factor in the apportionment formula—if a property factor is used—and should be sourced using the same methods used for institutions’ interest receipts from related loans and credit-card receivables.

The legislation follows at least a couple of years of revenue department attempts to revise the apportionment rules for financial institutions. One such rule proposed in 2015 would have mirrored a model regulation from the Multistate Tax Commission, but the state’s banking industry objected. Regions Financial has its headquarters in Birmingham, Ala., and is the state’s largest bank by deposit share, followed by BBVA Compass and Wells Fargo.

“By sourcing loans and credit card receivables based on the location of either the property securing the loan or the location of the borrower (if the loan is unsecured), House Bill 263 is the best of both worlds,” said Scott Latham, president and CEO of the Alabama Bankers Association.

“It minimizes, if not eliminates, sourcing disputes between financial institutions and revenue officials,” in a way that isn’t expected to affect local or state tax receipts, Latham told Bloomberg BNA in a March 16 email.

Minimizing disputes was the goal of the MTC’s model, but since Alabama “was the first — and possibly only” state to propose adopting the model, it meant banks would see a $10 million annual tax increase in the state, with no corresponding decrease in other states, he said. The banks affected most negatively would have been those with lots of physical branch locations in Alabama.

‘Smooth Sailing’ Expected

The bill’s support by the bankers association and several of its key members “probably helped it pass unanimously in the House. We expect it to have smooth sailing in the Senate as well,” said Bruce Ely, a tax attorney at Bradley Arant Boult Cummings LLP in Birmingham and member of Bloomberg BNA’s State Tax Advisory Board.

“In contrast to the MTC’s model regulation for financial institutions, the bill will include loans and credit-card receivables in the property factor while providing needed clarity on how those receivables are sourced. The bill will resolve an ongoing debate over the issue, at least in Alabama,” he told Bloomberg BNA on March 16.

Ely and another tax partner at Bradley, Jimmy Long, helped draft H.B. 263, said Ely, who also has represented clients in the banking industry.

The Legislature previously addressed the issue, but with less specific instructions to the revenue department.

Lawmakers and Gov. Robert Bentley (R) enacted legislation in 2016 erasing a requirement that Alabama’s financial institutions excise tax rules match the MTC model.

To contact the reporter on this story: Chris Marr in Atlanta at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of H.B. 263 is at

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