| SYNOPSIS: | This bill would amend Section 40-18-160, Code of Alabama 1975, to clarify that the definition of an "Alabama S corporation" follows the federal income tax definition, and includes a subchapter S corporation wholly-owned by a tax-exempt shareholder such as an employee stock ownership trust, and would also follow the federal rule by providing for the disregarded entity status of "qualified subchapter S subsidiaries." |
To amend Section 40-18-160, Code of Alabama 1975, to clarify that the definition of an "Alabama S corporation" conforms to the federal income tax definition, and includes a subchapter S corporation wholly-owned by a tax-exempt shareholder such as an employee stock ownership trust; to conform with the federal rule providing for disregarded entity status of "qualified subchapter S subsidiaries"; and to provide separate effective dates, including a retroactive effect.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Section 40-18-160, Code of Alabama 1975, is amended to read as follows:§40-18-160.
"(a) An Alabama S corporation shall not be subject to the tax imposed by Section 40-18-31.
"(b) For purposes of this chapter, an "Alabama S corporation" is a corporation:
"(1)a. With respect to which an election under 26 U.S.C. §1362 is in effect; or and
"b. The income, loss, deductions, or credits or items of income, loss, deduction, or credits of which affect the liability of any shareholder of the corporation for the income tax imposed by this chapter, either by reason of business done in Alabama by the corporation or the ownership of shares of the corporation by an Alabama resident; or,
"(2)a. With respect to which there is in effect an election under 26 U.S.C. §1361(b)(3) to treat such corporation as a qualified subchapter S subsidiary; and,
"b. All the stock of which is owned by an Alabama S corporation qualifying as an "Alabama S corporation" under subdivision (b)(1).
"No corporation shall be an Alabama S corporation for any portion of a taxable year of the corporation during which an election under 26 U.S.C. §1362 or §1361(b)(3), whichever is applicable, is not in effect for federal income tax purposes. No corporation shall be an Alabama S corporation if it is a financial institution, as defined in Section 40-16-1.
"(c) For purposes of this chapter, an "Alabama C corporation" means any corporation other than an Alabama S corporation.
"(d) With respect to a qualified subchapter S subsidiary for which there is in effect an election under 26 U.S.C. § 1361 (b)(3), all of its assets, liabilities, and items of income, deductions, and credit shall be treated as assets, liabilities, and such items (as the case may be) of the Alabama S corporation owning the stock of the qualified subchapter S subsidiary."
Section 2. (a) Except as provided in subsection (b) below, this act shall be effective for taxable years beginning after December 31, 1998, upon its passage and approval by the Governor or its otherwise becoming a law.
(b) The amendment relating to the definition of an Alabama S corporation in Section 40-18-160 (b), Code of Alabama 1975, merely clarifies existing law and shall therefore be retroactive to taxable years beginning after December 31, 1997.