Legislature agrees on state education budget
Published 12:00 am Wednesday, December 19, 2001
The Alabama Legislature continues to meet in special session in an effort to pass legislation to raise $160 million for the state education budget.
Last week a joint House and Senate legislative committee reached an agreement on a package of bills which would achieve this goal. Because each bill is a fundraising measure, it must originate in the House of Representatives under the provisions of our Alabama Constitution.
The House has acted favorably on a number of these bills, it is still considering others in the package, and it has defeated, at least temporarily, a proposal to tax video gambling machines.
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The compromise measures would make the following changes in existing law.
House Bill 47 n legislation passed in 1999 allowed a formula for the calculation of the federal income tax deduction that had the unintended consequence of increasing the deduction and thus reducing Alabama corporate income tax. This bill returns to the pre-1999 formula. Under current law, the calculation of the interest expense deduction is based on the market value of assets. Market value is more subjective than cost. This bill also requires the calculation to be based on the cost of the asset.
If House Bill 47 passes as proposed, it would increase revenue to the education fund by a total of $6 million.
House Bill 2 n current law permits an unlimited net operating loss carry-forward for fifteen years. There was a $600,000 annual cap until 1991. This bill suspends the net operating loss deduction for 2 years but extends the length of time to take the deduction by two additional years.
If House Bill 2 becomes law, it will result in an increase in education budget monies of $40 million.
House Bill 5 n current law does not require withholding by certain corporations for non-resident members.
This bill would require the corporation to withhold and pay taxes on behalf of its non-resident members for tax year 2001. In future tax years, the non-resident members must file a consent to be taxed by Alabama or the corporation must withhold taxes on behalf of the non-resident member.
If passed, this law could net an additional $10 million for the education fund.
House Bill 7 n a court decision rendered within the past few years allowed certain gains on the sale of some Alabama assets to be allocated to the parent home state. This would allow gains in Alabama to escape Alabama taxes. This bill broadens the definition of "business income" and has the effect of overruling the court case.
If passed, House Bill 7 would generate $5 million for education.
House Bill 4 n the Legislature adopted elective consolidated filing for affiliated corporations in 1998. The governor proposes to abolish consolidated filing entirely. This committee compromise adopts consolidated filing with safeguards to prevent abuses of consolidated filing.
An affiliate must have at least 10 percent of its income allocated and apportioned to Alabama in order to be a part of the consolidated group. Each member of the consolidated group must apportion its income and losses to Alabama before consolidation so that only the portion of a loss that is apportioned to Alabama can be used to offset income apportioned to Alabama.
It is a complicated measure but does remedy one of the more severe "loopholes" to which the governor and other officers of government have referred. If this bill passes, it would result in a net gain in revenue of $28 million.
House Bill 1 n this is the most controversial bill of the entire package. It involves a tax on the privilege of doing business as a corporation in the state of Alabama. Current law has a $15,000 cap for most corporations. The governor proposed a $2 million cap. This bill proposes a compromise of a $1 million cap. The rates are graduated and are based on federal taxable income.
This compromise removes some of the objection which was voiced by those who did not want to pay a privilege tax when they were losing money and not making a profit. The legislature has generally agreed with this position and has modified the governor's proposal to remove the requirement that tax be paid if a profit is not made. House Bill 1, as presently written, would generate $41 million for the education fund.
Senate Bill 30 n this bill would transfer certain obligations of the education fund to the state general fund and also reduces the appropriation to the Public School and College Authority, a fund which has been responsible for much of the new school construction throughout Alabama. The fiscal impact of these changes in appropriations would be approximately $20 million.
There are other bills in the package which generate small amounts of money but altogether the package totals an increase in revenue of $161 million. According to all groups involved in education circles, this would be adequate to fully fund the programs of public education in our state and remove any threat of proratiion.
This is a complicated issue as I am sure you discerned from what I have shared with you, and the Senate will be considering this legislation this week. I will continue to approach this important subject with the goal of being fair to all who are affected by the issues.
In the meantime, please know that "I'll go with you or I'll go for you" to help you solve any problem related to state government. You may reach me at 334-242-7883 while the legislature is in session.