SB425 Summary

• Requires Alabama resident individuals who own interests in partnerships, limited liability companies, S corporations, or beneficiary interests in estates or trusts to include their proportionate share of entity income in gross income regardless of whether income is earned within or outside Alabama.

• Allows resident individual owners and beneficiaries to claim a credit for their proportionate share of income taxes paid by these pass-through entities to other states or territories on business conducted outside Alabama, including taxes paid due to withholding obligations or entity-level taxes.

• Provides a foreign tax credit for resident owners or beneficiaries equal to their proportionate share of net income-based taxes paid by pass-through entities to foreign countries, limited to the amount of Alabama tax that would otherwise be imposed on foreign-source income.

• Supersedes inconsistent Department of Revenue Gross Income Regulations regarding taxation of pass-through entity income for Alabama resident owners.

• Becomes effective retroactively for tax years beginning after December 31, 2010, with no penalties assessed for underpayment of estimated taxes resulting from retroactive application.