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Surprise Proclamation Exempting CARES Act Benefits and Extending Sunset Dates on Two Major Tax Incentives

from Bruce P. Ely, Bradley 

"In a bold move, Governor Kay Ivey late this morning issued a ground-breaking Proclamation that would exempt from Alabama income and financial institution excise tax certain CARES Act benefits and would extend the sunset (expiration) date of two of our major industrial tax incentives. And following suit within only a few hours, the Alabama Department of Revenue issued a notice titled "ALDOR Updating Instructions and Guidance for Certain Returns" citing the Governor's "Supplemental State of Emergency Proclamation." The Department says that it plans to amend its income tax and financial institution excise tax returns and related instructions to implement the Governor's new mandates. It pledges to "issue a follow-up notice when this guidance and related return instructions... have been finalized... " and are posted on its website.

The Proclamation would exempt not only the CARES Act tax rebates and potential cancellation of indebtedness income resulting from forgiven PPP loans, but more broadly, "any tax credits, advance refund amounts, or other direct benefits a taxpayer receives under the federal CARES Act... " For example, ce1iain student loans paid off by your employer would seem to fit within the definition. The Proclamation contains a thorough discussion of the issues and tax policy and I commend it to your reading.

My preliminary thoughts: Obviously, this is a signal the Governor likely will not call a special session this or next month, despite pleas from many legislators, members of the business community and economic developers. While actions of this nature would normally fall within the ambit of the Alabama Legislative, the practical impact may be what counts. If the Governor and the ADOR implement these changes, any challenge to their legal efficacy would not only require a taxpayer or some organization to have legal standing to file suit in an Alabama court, but they must eventually win, and they risk the Legislative passing a bill retroactively endorsing the changes, possibly as soon as the 2021 regular session, which begins February 2.

If you have any questions regarding the scope of the Proclamation or the ADOR Notice, please contact Bruce Ely (bely@bradley.com) or any other member of our firm's SALT Practice Team."

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