Alabama Income tax / Franchise Tax: Amended rule on required adjustments to federal limitations

Amended Rule 810-3-1.1-.01 , Ala. Dept. of Rev. (eff. 9/24/09). An amended rule explains that federal income tax limitations calculated at a 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. The rule also explains that because federal income tax limitations are calculated without regard to allocation and apportionment, federal limitations must be adjusted to reflect the fact that Alabama multistate taxpayers must calculate Alabama taxable income on a post-allocation and apportionment basis.

The rule provides a numerical example of an Alabama net operating loss (NOL) calculation in a scenario involving limitations under Internal Revenue Code (IRC) Sec. 382. Under Alabama law, when a loss corporation experiences an ownership change and the provisions of IRC Sec. 382 apply, the Alabama apportionment factor of the loss corporation for the reporting period including the ownership change must be used to compute the IRC Sec. 382 limitation applicable to Alabama multistate taxpayers.