During its 2022 regular and special session, the Alabama Legislature enacted several tax cuts, including some key tax cuts for business:
- Small Business Relief and Revitalization Act: As of May 1, almost 2,500 businesses that collect sales taxes will no longer have to make monthly estimated payments, and an estimated 75% of Alabama businesses will be exempt from business personal property taxes in 2023.
- Average Employer Could See Almost 30% Unemployment Compensation Insurance Tax Rate Reduction: In its February special session, the Alabama Legislature appropriated federal pandemic relief funds to the Alabama Unemployment Compensation Insurance Trust Fund to bring the fund back to almost pre-pandemic levels. The fund dropped to Schedule C for 2022, which could mean a 29% reduction in tax liability for most employers in 2022. The first quarterly payment is due May 2.
- Elimination of the $100 Minimum Business Privilege Tax by 2024: An estimated 230,000 entities will see the $100 minimum business privilege tax cut in half to $50 beginning with the 2023 tax year. The minimum will be eliminated completely starting in 2024.
Individuals also will benefit from tax cuts enacted in the 2022 legislative sessions:
- Child, Earned Income and Dependent Care Tax Credits Shielded from 2021 State Income Tax: Federal COVID-related child, earned income and dependent care tax credits or advance payments in 2021 were shielded from Alabama’s state income taxes, which were due April 18.
- Optional Standard Deduction: An increase in the optional standard deduction and the threshold at which the state imposes individual income taxes will apply to 2022 Alabama income taxes due in April of 2023.
- Exemption for first $6,000 of taxable retirement income: Beginning with the 2022 tax year, those 65 or older can claim an income tax exemption for the first $6,000 in taxable retirement income.
“I am committed to making sure Alabama is the best place to live, work and raise a family,” Gov. Kay Ivey said of the 2022 tax cuts. “I commend the Alabama Legislature for their hard work in providing tax relief to Alabamians.”
TAX LEGISLATION THAT DIED
The following bills failed to get even committee approval in the 2022 regular session:
Business license reform
The Senate Finance Taxation and Education Committee never considered SB145 by Sen. Shay Shelnutt, R-Trussville, which would have allowed businesses paying municipal business licenses based on gross receipts to deduct any excise taxes paid to federal, state and local governments from those receipts. Businesses generally pay excise taxes on fuel, tobacco and alcohol.
Eliminate sales tax on food
The House Ways & Means Education Committee never considered several bills to eliminate the state sales tax on food:
- HB174 by Rep. Mike Holmes, R-Wetumpka, would have repealed the grocery tax outright. It would have exempted food from sales and use taxes beginning Sept. 1 of this year.
- HB173, also by Holmes, and SB43 by Sen. Andrew Jones, R-Centre, were constitutional amendments that would have exempted food from state sales and use taxes beginning Jan. 1, 2023, and limit the allowable federal income taxes paid deduction to $4,000 for individuals and $8,000 for married couples filing jointly. They would have required voter approval to become law.
- HB184 by Rep. Mary Moore, D-Birmingham, would have phased out the state’s 4% sales and use tax on food by one percentage point annually, beginning Sept. 1, of this year and eliminate the tax completely by Sept. 1, 2025.
No taxes on diapers/feminine products
The House Ways & Means Education Committee also never considered HB233 by Rep. Neil Rafferty, D-Birmingham, which would have exempted diapers and feminine hygiene products from state sales taxes.
Work Opportunity Tax Credit
The Senate Finance and Taxation Education Committee did not take up SB197, which would have allowed an Alabama employer to claim a tax credit on Alabama income taxes or financial institution excise taxes for an employee eligible under the federal Work Opportunity Tax Credit Program.
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