HB373 Summary

• Establishes a factor presence nexus standard for Alabama income tax by adding Section 40-18-31.2 to the Alabama Code, effective for tax year 2011 and thereafter.

• Residents, domiciliaries of Alabama, and business entities organized or commercially domiciled in the state have substantial nexus and are subject to income tax.

• Nonresident individuals and out-of-state business entities have substantial nexus when they exceed specified thresholds during a tax period: $50,000 in property, $50,000 in payroll, $500,000 in sales, or 25 percent of total property, payroll, or sales.

• The Commissioner shall annually adjust thresholds based on cumulative changes to the Consumer Price Index (CPI-U), with adjustments applying when the index changes by 5 percent or more since January 1, 2010, rounded to the nearest $1,000.

• Commonly owned enterprises must aggregate property, payroll, and sales across related entities to determine nexus status; pass-through entities (partnerships, LLCs, S corporations, trusts) determine thresholds at the entity level, with members subject to tax on their share of income if thresholds are exceeded.