Ala. Code § 40-14A-1

Current through the 2024 Regular Session.

Section 40-14A-1 - Definitions

For purposes of this chapter, the following terms shall mean:

(a) ALABAMA S CORPORATION. An S corporation defined under Section 40-18-160.

(b) C CORPORATION. A corporation other than an Alabama S corporation.

(c) CODE. The Internal Revenue Code of 1986, as amended from time to time.

(d) CORPORATION. An entity, including a limited liability company electing to be taxed as a corporation for federal income tax purposes, through which business can be conducted while offering limited liability to the owners of the entity with respect to some or all of the obligations of the entity, other than a limited liability entity or a disregarded entity. The term "corporation" shall include but not be limited to the following: Corporations, professional corporations, joint stock companies, unincorporated professional associations, real estate investment trusts, limited liability companies electing to be taxed as corporations for federal income tax purposes, and all associations classified as corporations for federal income tax purposes. The term "corporation" shall not include any county, municipal corporation, political subdivision of the state, governmental corporation, instrumentality or agency thereof.

(e) DEPARTMENT. The Department of Revenue created by Chapter 2.

(f) DETERMINATION PERIOD. The taxpayer's taxable year next preceding or, if different, the fiscal year next preceding the taxpayer's current taxable year. If the constitutional amendment proposed by Act 99-600 is ratified by the qualified electors of the state and proclaimed by the Governor as provided in Sections 284 and 285 of the Constitution of Alabama 1901, then for all tax years beginning after December 31, 2000, the term "determination period" means the taxpayer's taxable year next preceding the taxpayer's current taxable year.

(g) DISREGARDED ENTITY. A limited liability company that is disregarded for purposes of federal income tax, or a qualified subchapter S subsidiary, as defined in 26 U.S.C. §1361.

(h) ELECTING FAMILY LIMITED LIABILITY ENTITY. A limited liability entity that meets the following requirements:

(1) Eighty percent or more of the profits and capital interests are directly or constructively owned by an individual and the members of the individual's family, as defined in subdivision (4);

(2) Elects annually (on or before the due date, including extensions, of the return for the tax levied by this chapter) in a manner prescribed by the department to be taxed for the taxable year as a family limited liability entity; and

(3) Either: The Gross Receipts Test in a. or the Assets Test in b.

a. Gross Receipts Test. Ninety percent or more of the gross receipts of the entity for the taxable year consist of any combination of the following:

(i) Interest;

(ii) dividends or other distributions or payments made with respect to stock or securities;

(iii) rents, license fees, or other fees for the use of property where the entity does not render direct substantial services in connection with such use;

(iv) receipts described in 26 U.S.C. §631(b) from the sale or leasing of timber or timberlands;

(v) royalties;

(vi) annuity payments;

(vii) proceeds from the sale of an asset other than in the ordinary course of the entity's trade or business; or

b. Assets Test. The aggregate adjusted basis of the following categories of assets constitutes at least 90 percent of the aggregate adjusted basis of all of the entity's assets:

(i) Cash or cash equivalents;

(ii) stocks, bonds, debentures, notes, or other securities;

(iii) timber or timberlands;

(iv) annuities;

(v) assets held principally for appreciation rather than production of income;

(vi) mutual funds;

(vii) assets not used directly in the active conduct of the entity's trade or business of the entity; or

(viii) royalty interests.

The Assets Test in b. shall be computed: Without regard to any increase or decrease in adjusted basis on account of an election under 26 U.S.C. §754; as of the first day of the taxable year; without including assets held primarily for sale to customers in the ordinary course of the entity's trade or business in the numerator; and using the adjusted basis as determined for federal income tax purposes.

(4) For purposes of this subsection, "members of the individual's family" shall include the individual's spouse, grandparents, and the lineal descendents of the grandparents and their spouses. Whether interests are constructively owned shall be determined using the attribution rules set forth in 26 U.S.C. §318 as if the profits and capital interests of the family limited liability entity were stock and without regard to the fifty percent limitations contained in 26 U.S.C. §318(a)(2)(C) and 26 U.S.C. §318(a)(3)(C)).

(i) FEDERAL INCOME TAX. The income tax imposed by the Code, as amended from time to time.

(j) FISCAL YEAR. The annual period used by a taxpayer to determine its federal income tax, financial institution excise tax, or report its financial results.

(k) LIMITED LIABILITY ENTITY. Any entity, other than a corporation, organized under the laws of this or any other jurisdiction through which business may be conducted while offering limited liability to the owners of the entity with respect to some or all of the obligations of the entity and which is taxable under subchapter K of the Code, including, without limitation, limited liability companies, registered limited liability partnerships, and limited partnerships.

(l) RELATED PARTY. Any member of a controlled group of corporations as defined in 26 U.S.C. §1563, or a limited liability entity that would be a member of a controlled group if rules similar to those of 26 U.S.C. §1563 were applied to limited liability entities.

(m) TAXABLE INCOME. In the case of a C corporation, the amount of its federal taxable income. In the case of an Alabama S corporation, other than a qualified subchapter S subsidiary, the amount taken into account by its owners pursuant to 26 U.S.C. §1366. In the case of a limited liability entity, the amounts taken into account by its owners pursuant to 26 U.S.C. §702. In the case of a real estate investment trust, the real estate investment trust taxable income determined pursuant to 26 U.S.C. §857. In the case of a disregarded entity, the amount taken into account by its owner pursuant to 26 U.S.C. §1361 or §61. In each case, taxable income of the entity subject to tax shall mean its taxable income for the determination period. In each case, taxable income shall be apportioned and allocated to Alabama in accordance with Chapter 18 or in the case of a financial institution, Chapter 16, or in accordance with Title 27 relating to insurance companies.

(n) TAXABLE YEAR. The calendar year for which a tax levied by this chapter is being determined. For all tax years beginning after December 31, 2000, the term "taxable year" means the fiscal year used by the taxpayer to file returns required under the income tax levied by Chapter 18 or the financial institution excise tax levied by Chapter 16, or, in the case of an insurance company subject to the premium tax levied by Chapter 4A of Title 27, the calendar year.

(o) TAXPAYER. A corporation, limited liability entity, or disregarded entity, subject to a tax levied by this chapter.

(p) U.S.C. The United States Code, as amended from time to time.

Ala. Code § 40-14A-1 (1975)

Act 99-665, 2nd Sp. Sess., p. 131, §2; Act 2000-705, p. 1442, §2.