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New Alabama Regulations May Impact Your Business Privilege Tax Filing Obligations

Legal Services
03.23.11

New regulations issued by the Alabama Department of Revenue (ADOR) set forth the Department's position regarding the application of the Alabama business privilege tax (BPT) to business entities, including certain owners of such entities. ADOR also clarified the BPT filing requirements for disregarded entities. If your business – or a business entity in which you have a ownership interest – currently has activities or owns property in Alabama, these new regulations may subject you to the BPT or alter the manner in which you file BPT returns. The regulations become effective on March 30, 2011.

Scope of BPT

The BPT is a tax imposed on the net worth of business entities (corporations, limited liability companies, limited partnerships, etc.) doing business in Alabama, or organized, incorporated, qualified, or registered under the laws of Alabama. The new regulations clarify the term "doing business" by providing examples of what activities constitute doing business for BPT purposes in ADOR's view.

With respect to property ownership, the regulations provide specific examples of property ownership that constitute doing business in Alabama; however, they also state that, in most instances, a business entity that merely owns property located in Alabama (whether personal property or real property) is "doing business," and therefore subject to the BPT.

With respect to activities, the regulations provide that the facts and circumstances of each case must be considered in order to determine if a business entity is doing business in Alabama but include examples of activities carried on within the borders of Alabama that ADOR considers to constitute "doing business." The regulations also offer insight into the filing requirements of owners of business entities subject to the BPT that are business entities themselves.

You can view the new regulations on the scope of the BPT by clicking on the following link.

Filing Requirements of Disregarded Entities

Disregarded entities (e.g., certain single-member limited liability companies and qualified subchapter S subsidiaries) are subject to the BPT; however, the filing requirements for such entities have not been clear in all situations, particularly when such entities have owners who also are subject to the BPT. The new regulations address this issue by providing that if a disregarded entity has an owner subject to the BPT, both the disregarded entity and the owner are required to file BPT returns. The regulations detail what information should be included on each of these returns. In addition, the regulations discuss what information needs to be included on returns filed by disregarded entities that do not have an owner subject to the BPT.

You can view the new regulation on the filing requirements of disregarded entities by clicking on the following link.

For additional information please contact Jon Gaston, Leigh Griffith, or any other member of the Waller Lansden Tax Practice at 800-487-6380.

WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOREGOING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

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