2015 SPECIAL LEGISLATIVE SESSION ENDS WITH NO BUDGET
The first special legislative session of 2015 that began July 13 ended Tuesday with no General Fund budget.
Because passage of a General Fund budget eluded the House and Senate for the second time this year, another special legislative session will be needed this summer in order to craft a general government spending bill for the fiscal year that begins Oct. 1. Governor Robert Bentley vetoed a General Fund budget in the 2015 regular session because it cut spending rather than increased revenue. After the Governor's tax bills failed in the House Ways and Means General Fund Committee last week, it seemed unlikely that a budget would be developed that he would sign. Following a failed vote to increase the tax on cigarettes, the other tax proposals, such as increasing the Business Privilege Tax, were not considered. This also resulted in the proposal by House Ways and Means Education Chairman Rep. Bill Poole, R-Northport, to transfer use taxes from the Education Trust Fund to the General Fund to be killed because some of the tax proposals that died were to be used to "back-fill" the ETF. House Ways and Means General Fund Chairman Rep. Steve Clouse, R-Ozark, responded to the failed tax proposal by introducing an amendment to the General Fund budget that would have cut $228 million from this year's spending plan, including $156 million from the Medicaid Agency that takes one-third of the General Fund and grows every year. This version of the budget passed the House. The Senate passed a substitute bill 19-15 that reduced the Medicaid cut (it was very similar to the budget the Senate passed in the regular session) but when it went back to the House, members voted 92-2 to kill it. Bentley had said he would veto any budget that cut Medicaid, and Senate President Pro Tem Del Marsh, R-Anniston, said he couldn't support such a cut to Medicaid, partly because it would endanger federal funding.
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Senate Committee Approved Tax Increase on Business via Combined Reporting
The special session ended with the demise of SB 51 by Sen. Linda Coleman, D-Birmingham, which would have increased taxes for existing business and hindered future job creation by requiring mandatory unitary combined reporting in the state. SB 51 was placed on the agenda for the Senate Finance and Taxation Education Committee less than two hours prior to the meeting and quickly passed.
The following Senators voted for this tax increase on business:
Sen. Gerald Dial
Sen. Vivian Figures
Sen. Jim McClendon
Sen. Trip Pittman
Sen. Arthur Orr
Sen. Hank Sanders
Sen. Harri Ann Smith
Sen. Rodger Smitherman
Sen. Jabo Waggoner
These Senators voted against this tax increase on business:
Sen. Gerald Allen
Sen. Slade Blackwell
Sen. Paul Bussman
Sen. Jimmy Holley
Sen. Tom Whatley
Prior to the vote, the Business Associations' Tax Coalition, of which the BCA is a member, quickly made known its opposition to SB 51: it would hinder economic development because neighboring states do not have this tax structure, be costly for businesses and consumers, create confusion in the tax code, and give too much authority to the Alabama Department of Revenue. Committee members were provided with a letter and supporting analysis explaining why combined reporting would be bad for business.
After passing the Senate committee, members of the business, economic development and chamber of commerce communities rallied to educate senators on the threat SB 51 posed to economic development.
BCA President and CEO William J. Canary sent an action alert to BCA members urging businesses to contact senators to stop this unnecessary tax increase that would hurt job creation
"This proposal would have placed a disproportionate burden on business," said Canary. "SB 51 is clearly a deterrent to job creation. It expands government and the powers of the Alabama Department of Revenue while increasing business taxes."
Jim Searcy, executive director of the Economic Development Association of Alabama, sent a letter to Alabama senators opposing SB 51. "Should this bill pass, Alabama would be the only southeastern state to have this requirement and would stigmatize the state as possessing an unwelcoming business climate," he wrote.
Proving the point that SB 51 is a job killer, Birmingham Business Alliance President and CEO Brian Hilson sent senators a letter indicating that a project creating 350 jobs in Birmingham is at risk due to the legislation passing the Senate committee.
There are still talks of introducing Mandatory Unitary Combined Reporting in future sessions and members of the business community are strongly encouraged to speak with legislators and let them know this is bad for business.
Bills to Increase Revenue Pass, Go to Governor
Factor Presence Nexus
The factor nexus presence bill, HB 49 by Rep. Rod Scott, D-Fairfield, passed the House and Senate and was sent to Governor Bentley for consideration. This bill would rearrange the tax structure to levy taxes on businesses with certain financial parameters.
"Substantial nexus" with the state of Alabama would be established if any of the following apportionment factors were exceeded: possessing at least $50,000 of property, $50,000 in payroll, $500,000 in sales, or if 25 percent of the taxpayer's total property, total payroll, or total sales are located in or derived from Alabama. At least seven states have adopted some form of the factor-presence nexus standard in part as an alternative method to tax remote sellers that are not required to pay sales and use tax to jurisdictions where they have no physical presence. HB 49 as introduced would establish a factor-presence nexus standard for business activity for purposes of the business privilege tax, income taxes, and/or financial institution excise taxes, which could increase receipts to the Education Trust Fund and State General Fund by an estimated $2 million to $8.5 million annually combined, based on information from the Alabama Department of Revenue. A Senate version of the bill, SB 39, did not pass. It contained additional language that would have provided an element of mandatory unitary combined reporting, which would have greatly and negatively impacted Alabama business. Taxpayer Fraud Prevention Act HB 42, the Taxpayer Fraud Prevention Act sponsored by Rep. Ken Johnson, R-Moulton, went to Governor Bentley's office on Aug. 10. The bill would increase taxes to the ETF by about $12 million by ending the 100 percent total exemption of state withholding taxes on state income taxes. In addition, the bill requires the Alabama Department of Revenue to provide downloadable withholding forms in English and other languages on the ADOR website. Annual Certificate of Exemption The House on Tuesday passed SB 24 and sent it to Governor Bentley. The bill by Sen. Trip Pittman, R-Daphne, requires all persons or companies including non-profit groups that are exempt from the payment of sales, use, and lodgings taxes, other than governmental entities, to obtain a certificate of exemption each year and to file reports with the ADOR. Sales Tax Suppression Devices Will Now Be Illegal
HB 18 by Rep. Steve McMillan, R-Gulf Shores, would make it a crime to "knowingly sell, purchase, install, transfer, or possess in this state any automated sales suppression device or phantom-ware[.]" These devices or programs manipulate the number of sales recorded at the register for sales tax withholding purposes. This bill could provide an undetermined amount of new revenue from both correct sales tax receipts and from fines and forfeited profits from violators. It was passed by both chambers and sent to the governor for consideration.
Out-of-State Purchasers Subject to Automotive Sales Tax
HB 25 by Rep. Ken Johnson, R-Moulton, would subject the sale of most vehicles that will be registered or titled outside of Alabama and are exported or removed from the state within 72 hours for first use to the state automotive sales tax rate unless the purchaser will be first titling and registering the vehicle in a state that has a reciprocal exemption from such a tax for an Alabama purchaser. This bill would raise at minimum an estimated $2 million annually, with the General Fund receiving $840,000 and the ETF receiving $1.16 million. Both houses passed the bill and it was sent to the governor.
Bills of interest that did not pass:
Two bills, HB 9 and HB 10, would have increased the tobacco tax.
HB 9 by Rep. Mike Hill, R-Columbiana, would have increased the tobacco tax, change the discount to wholesalers, and taxed vapor cigarettes for the first time. HB 10 by Rep. Connie Rowe, R-Jasper, would have increased cigarette tax receipts to the State General Fund by an estimated $66 million annually. The bill also would have reduced the discount to wholesalers or jobbers from 7.5 percent to 4.75 percent. HB 43 by Rep. Bill Poole, R-Northport, would have changed the distribution of the state use tax and moved a minimum of $221 million from the ETF to the General Fund. The bill also would have moved funding of dozens of enumerated state agency and program allocations from the ETF to the General Fund as a first charge from the amount allocated to the General Fund by this bill, or an estimated $189 million, starting in fiscal year 2017. While HB 43 would have retained a split in use tax revenues from remote sales, SB 30 by Senate President Pro Tem Del Marsh, R-Anniston, would have removed the ETF distribution from this formula and given the General Fund one-half of such proceeds. SB 30 would have moved $225 million from the ETF to the General Fund beginning in fiscal year 2016, but there was no provision requiring the funding of the enumerated agency and program allocations that are in Rep. Poole's bill. HB 46 by Rep. Allen Farley, R-McCalla, would have removed earmarks on $508 million in revenue, freeing up the money for possible use in the 2016-17 General Fund budget. The bill did not advance after House passage. Concerns were raised by agencies about this bill's effect on industry-specific business fees that currently fund regulators of those industries, such as the Alabama Department of Environmental Management and the Department of Insurance. HB 47 by Poole sought to amend the 2011 Rolling Reserve Act that set a statutory cap on the next year's ETF based on the average growth in the previous 15 years. This would have created a budget stabilization fund of up to 7.5 percent of the total ETF, or about $450 million, before any money could be used for one-time expenses. It included a one-time transfer of up to $50 million to the General Fund in FY 2016. Poole carried his bill over on the House floor. SB 5 by Sen. Trip Pittman, R-Daphne, would have created a budget stabilization fund of up to 10 percent of the total ETF, or about $600 million, before any money could be used for one-time expenses. The bill also would drop the Rolling Reserve formula for calculating budget appropriation increases from 15 years to 14 years.
SB 8 by Senate Pro Tem Marsh remained in the Senate Tourism and Marketing Committee the entire session but it's virtually certain that the bill will be seen again in a future legislative session.
Marsh's bill, a constitutional amendment, asks voters to establish an Alabama Education Lottery and an Alabama Education Lottery Corp. that would regulate authorized gaming by entities currently licensed to conduct pari-mutuel wagering at the four existing racetracks in Alabama where pari-mutuel wagering is currently legal. The bill also would authorize the Governor to negotiate a compact with the Poarch Band of Creek Indians.
The Senate passed SB 33 by Sen. Arthur Orr, R-Decatur, but it was carried over in the House on Tuesday. SB 33 would have created a Judicial Resources Allocation Commission that would have been authorized to increase or decrease the number of circuit and district court judgeships based on rankings determined by population, caseload, judicial duties in the circuit or district, and other criteria. The commission would have been able to move a judgeship only in the event of a vacancy due to death, retirement, resignation, removal from office, or if an incumbent judge could not run for reelection due to age restrictions. Delinquent taxpayers would have been able to get some relief under SB 21 by Sen. Tim Melson, R-Sheffield. SB 21, entitled the "Tax Delinquency Amnesty Act of 2015," was carried over and did not pass. It would have required the Department of Revenue to establish an amnesty program for taxpayers who owe delinquent state and local taxes, except for motor fuel taxes, that were due prior to Jan. 1. SB 38 by Sen. Clay Scofield, R-Guntersville, was a constitutional amendment that would have asked voters to end the purchase of Forever Wild lands and transfer about $11 million a year paid to the Forever Wild Land Trust from the Alabama Trust Fund to the Department of Conservation and Natural Resources to be used by state parks. The Senate passed the bill but it did not advance. SB 43, by Sen. Bill Hightower, R-Mobile, was a proposed constitutional amendment asking voters to replace Alabama's current income tax with a flat tax. Sen. Hightower introduced a version of this bill during the 2015 regular session. Starting in tax year 2017, the bill, as amended, if it had passed and if voters approved, would have reduced the Alabama individual income tax rate to 3.34 percent and the Alabama corporate tax rate to 4.59 percent. Most credits, exemptions, and deductions would be disallowed.
Charitable contribution and mortgage interest payment deductions would still be allowed, as would an adjustment for the taxability of certain contributions to defined benefit plans. The bill would have required an 80 percent vote of members of each House to enact any future tax credit, deduction, or exemption.
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YOUR BCA ADVOCACY TEAM
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Dana Beyerle
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William J. Canary
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President and Chief Executive Officer
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Mark Colson
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Senior Vice President of Government Affairs and
Chief of Staff
334.240.8724
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Anna Dobbins
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Leah Garner
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Drew Harrell
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Deputy Chief of Staff and Director of Strategic Operations
334.240.8727
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Nancy Wall Hewston
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Vice President of Communications, Strategic Information and Federal Affairs
334.240.8725
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Nathan Lindsay
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Vice President for Political Affairs, Regional Operations and Executive Director of ProgressPAC
334.240.8766
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Trevor Parrish
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Joshua Vaughn
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Director of Visual Communications and Strategic Information
334.240.8740
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Victor Vernon
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Vice President for Public Policy
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Pam Ware
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For more information on the Business Council of Alabama contact
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