By: Trey Whitt, CPA
The recently concluded special session of the Alabama legislature was active with respect to issues relating to individual taxpayers and business owners. The following summarizes the recently-enacted legislation:
Economic Stimulus Payments Not Taxable
Alabama will not tax the federal economic stimuls payments made to qualifying individual taxpayers beginning in May. You may remember that in 2001, Alabama taxed similar federal rebates by reducing the federal income tax deduction by the amount of the rebate.
Federal Income Tax Deduction Safe...For Now
Speaking of the federal income tax deduction, there has been much discussion regarding the elimination of that deduction in the computation of Alabama taxable income. Alabama is one of just a handful of states that still allow a full deduction for federal income taxes, and thus, this deduction has come under scrutiny from state lawmakers as they look for a way to pay for a state sales tax exemption on food items. No action was taken on the repeal of the federal income tax deduction or the sales tax exemption on food, but look for both issues to be revisited soon.
“Super-Deduction” For Health Insurance Premiums
Beginning in tax years commencing after December 31, 2007, Alabama small businesses (i.e. businesses employing less than 25 employees) will be allowed a deduction of 150% of their cost to provide group health insurance benefits to their employees. A similar provision is available to individuals who purchase all or a portion of their health insurance.
Enhanced Business Expensing, Bonus Depreciation — Not In Alabama
While Alabama has extended favorable tax treatment to individual taxpayers receiving federal rebates from the Economic Stimulus Act of 2008, the same cannot be said for business owners taking advantage of the business provisions of the Act. The Act raises the annual amount of capital expenditures available for first-year expensing from $128,000 to $250,000 beginning in 2008. The Act also provides 50% bonus depreciation for qualifying capital expenditures placed into service in 2008. While Alabama has typically adopted the federal rules as their own, this time Alabama has decided to pass on adopting the business provisions of the Act. While this decision will certainly cost business owners state tax dollars in 2008, this “decoupling” from federal depreciation rules also imposes the administrative burden on Alabama businesses of maintaining two sets of depreciation records, one for federal tax purposes, and another for Alabama.