Warren Averett Tax Tip: Alabama Legislation Changes the Law Regarding Taxes Paid to Other States

On March 28, Governor Kay Ivey signed H.B. 385 into law, limiting the credit that resident individual taxpayers can claim for their taxes paid to other states. For many years, taxpayers have been in strong opposition to the change in the credit calculation brought about by the Alabama Department of Revenue (ADOR) in 2011 by changing the tax form. The ADOR claimed that this was a correction of its misinterpretation of the 1955 law regarding taxes paid to other states. The change caused a significant reduction in the amount of credits that Alabama individual taxpayers could recognize. However, the change was not made through legislation, and, therefore, litigation resulted to address this issue.

The ADOR, in conjunction with the Business Council of Alabama and the Alabama Society of CPAs, worked together for a legislative solution to this problem. The negotiations centered around the effective date of the law and treatment of refunds from prior years. The new legislation codifies the ADOR position but makes it effective for tax years beginning on or after January 1, 2018. Also, individual taxpayers can file refund claims for all open tax years (to the extent the year is still open under the statute of limitations), and the refunds must be filed by Saturday June 30, 2018. For 2017 tax returns, taxpayers should file without the limitation previously added by the ADOR.

If you have questions regarding how this new law will affect you or how to secure your refund, please contact your Warren Averett advisor.