Section 40-16-1 Definitions.
Section 40-16-1
Definitions.
For the purpose of this chapter, the following terms shall have the respective meanings ascribed to them by this section:
(1) FINANCIAL INSTITUTION. Any person, firm, corporation and any legal entity whatsoever doing business in this state as a national banking association, bank, banking association, trust company, industrial or other loan company or building and loan association, and such term shall likewise include any other institution or person employing moneyed capital coming into competition with the business of national banks, and shall apply to such person or institution regardless of what business form and whether or not incorporated, whether of issue or not, and by whatsoever authority existing. The common parent corporation of a controlled group of corporations eligible to elect to file a consolidated excise tax return, in accordance with Section 40-16-3, shall be considered a financial institution if such parent corporation is a registered bank holding company as defined by the Bank Holding Company Act of 1956, as amended. As a financial institution, the common parent corporation will be governed by Sections 40-16-1 through 40-16-8 and exempt from all income taxes under Sections 40-18-1 through 40-18-85, with the exception that the credit for licenses or taxes as provided by Section 40-16-8 and the regulations issued or promulgated pursuant thereto by the Department of Revenue will not apply to amounts of excise tax on financial institutions imposed hereby and paid by such parent corporation. Financial institution shall not mean or include individual citizens and fiduciaries acting in a representative capacity for individual citizens, not engaged in a banking, loan, investment or similar business, but merely making personal investments of personal or fiduciary funds in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks, nor shall such term apply to insurance companies or insurance associations merely making investments of reserves in bonds, notes or other evidences of indebtedness and not made in competition with the business of national banks.
(2) NET INCOME. The net income for the taxable year, as in this title defined, arising from the business the privilege to engage in which is hereby taxed, computed by deducting from the gross income arising from such business, without any exclusions from or credit to such gross income, the total amount of the following deductions:
a. All the ordinary and necessary expenses paid or incurred during the year the income is received which is made the basis of the tax in carrying on the business, the privilege to engage in which is hereby taxed, including a reasonable allowance for salaries or other compensation for personal service actually rendered; also all contributions paid by a financial institution as employer to or under a stock bonus, pension, profit-sharing or annuity plan, or if compensation is paid or accrued on account of any employee of any financial institution under the plan deferring the receipt of such compensation, such contributions or compensation shall be deductible, but only to the following extent:
1. In the taxable year when paid, if the contributions are paid into a pension trust and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under Section 40-18-25 in an amount determined as follows: (i) An amount not in excess of five percent of the compensation otherwise paid or accrued during the taxable year to all the employees under the trust, but such amount may be reduced for future years if found by the Commissioner of Revenue upon periodical examinations at not less than five year intervals to be more than the amount reasonably necessary to provide the remaining unfunded cost of past and current service credits of all employees under the plan, plus (ii) any excess over the amount allowable under clause (i) necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Commissioner of Revenue, but if such remaining unfunded cost with respect to any three individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least five taxable years, or (iii) in lieu of the amounts allowable under (i) and (ii) above, an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Commissioner of Revenue plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount not in excess of 10 percent of the cost which would be required to completely fund or purchase such pension or annuity credits as of the date when they are included in the plan, as determined under regulations prescribed by the Commissioner of Revenue; except, that in no case shall a deduction be allowed for any amount (other than the normal cost) paid in after such pension or annuity credits are completely funded or purchased, (iv) any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year in accordance with the foregoing limitations.
2. In the taxable year when paid, in an amount determined in accordance with subparagraph 1 of this paragraph, if the contributions are paid toward the purchase of retirement annuities and such purchase is a part of a plan which meets the requirements of subsection (e) of Section 40-18-25, and if refunds of premiums, if any, are applied within the current taxable year or next succeeding taxable year towards the purchase of such retirement annuities.
3. In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under subsection (e) of Section 40-18-25, in an amount not in excess of 15 percent of the compensation otherwise paid or accrued during the taxable year to all employees under the stock bonus or profit-sharing plan. If in any taxable year beginning after the approval of this chapter by the Governor there is paid into the trust, or a similar trust then in effect, amounts less than the amounts deductible under the preceding sentence, the excess or, if no amount is paid, the amounts deductible shall be carried forward and be deductible when paid in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any such succeeding taxable year shall not exceed 15 percent of the compensation otherwise paid or accrued during such succeeding taxable year to the beneficiaries under the plan. In addition, any amount paid into the trust in a taxable year beginning after the approval of this chapter by the Governor in excess of the amount allowable with respect to such year under the preceding provisions of this subparagraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this subparagraph shall not exceed 15 percent of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan. The term stock bonus or profit-sharing trust, as used in this subparagraph, shall not include any trust designed to provide benefits upon retirement and covering a period of years, if under the plan the amounts to be contributed by the employer can be determined actuarially as provided in subparagraph 1. If the contributions are made to two or more stock bonus or profit-sharing trusts, such trusts shall be considered a single trust for the purposes of applying the limitations of this subparagraph.
4. In the taxable year when paid, if the plan is not one included in subparagraphs 1, 2 or 3, if the employees' rights to or derived from such employer's contribution or such compensation are nonforfeitable at the time the contribution or compensation is paid.
5. For the purposes of subparagraphs 1, 2 and 3, a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within 60 days after the close of the taxable year of accrual.
6. If amounts are deductible under subparagraphs 1 and 3, or 2 and 3, or 1, 2 and 3, in connection with the two or more trusts, or one or more trusts and an annuity plan, the total amount deductible in a taxable year under such trusts and plans shall not exceed 25 percent of the compensation otherwise paid or accrued during the taxable year to the persons who are the beneficiaries of the trusts or plans. In addition, any amount paid into such trust or under such annuity plans in any taxable year in excess of the amount allowable with respect to such year under the preceding provisions of this subparagraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year, together with the amount allowable under the first sentence of this subparagraph, shall not exceed 30 percent of the compensation otherwise paid or accrued during such taxable years to the beneficiaries under the trusts or plans. This subparagraph shall not have the effect of reducing the amount otherwise deductible under subparagraphs 1, 2 and 3, if no employee is a beneficiary under more than one trust, or a trust and an annuity plan. If there is no plan but a method of employer contributions or compensation has the effect of a stock bonus, pension, profit-sharing, or annuity plan, or similar plan deferring the receipt of compensation, this paragraph shall apply as if there were such a plan. Also, all contributions or gifts made by financial institutions to a community chest or to recognized religious, charitable, scientific or educational institutions or agencies, or to institutions or agencies for the prevention of cruelty to children or animals, which are not operated for profit and no part of the net earnings of which inures to the benefit of any private stockholder or individual or contributions or gifts for vocational rehabilitation authorized by the United States Vocational Rehabilitation Act. The amount of such deduction shall not be, however, in excess of five percent of the financial institution's net income as computed without the benefit of this subsection. Such contributions or gifts shall be allowable as deductions only where made to a community chest or institution or agency recognized as such for the above purposes under rules and regulations prescribed by the Department of Revenue. Traveling expenses, including a reasonable amount expended for meals and lodgings while away from home in the necessary business of such institutions; rentals or other payments required to be made as the condition to the continued use or possession for the purposes of such business, or property to which the taxpayer has not taken or is not taking title or in which the taxpayer has no equity, provided the amount and the reasonableness of all such expenditures shall be approved by the state Department of Revenue.
b. All interest paid or accrued within the taxable year on the indebtedness of said business. Also, all dividends paid or accrued within the taxable year on the shares of preferred stock held or owned by a reconstruction finance corporation or any other governmental agency;
c. Taxes actually paid within the year in which the income on which the tax is based was received, except the excise tax imposed by this chapter and taxes assessed against local benefits of a kind tending to increase the value of the property assessed;
d. Losses sustained and determined during the taxable year by the business and not compensated for by insurance or otherwise:
1. The basis for determining the amount of any loss or gain shall be the cost to the financial institution of the asset disposed of less the actual depreciation sustained on physical asset and any reduction charged as an expense upon stocks, bonds or other securities in previous years.
2. No loss shall be allowable unless the property is actually disposed of and the loss thereby determined or an appraisal of the loss is made and allowed under the supervision of the Department of Revenue, except as hereinafter provided.
e. Debts ascertained to be worthless and charged off within the taxable year; provided, that a schedule of such debts shall be filed and the reasons supporting such claim for deduction be filed with the return; provided, further, that bad debts shall not include losses on stocks and bonds or a reduction in the market value of such stocks and bonds except where loss is determined by the sale of such securities; provided, that in the case of any financial institution required by law to be examined by state, federal or federal reserve bank examiners, such debts can be charged off and to such an amount or extent as required to be charged off by state, federal or federal reserve bank examiners. Any reduction in the book value of any stocks or bonds carried on the books of any such financial institution required by any state, federal or federal reserve bank examiners shall be allowed as proper deductions by the state Department of Revenue. On the sale of any securities, the book value of which has been reduced on the requirement of such examiners, and the reduction so made claimed as a deduction, accomplishing a reduction of the tax paid, any excess of the sale price over said book value of such securities shall be reflected as income and subject to the excise tax levied by this chapter. When in the opinion of state, federal or federal reserve bank examiners a debt is recoverable only in part and when a part of such debt is charged off by requirement of state, federal or federal reserve bank examiners, the Department of Revenue shall allow a deduction in an amount equal to the amount of such charge-off;
f. A reasonable allowance for the exhaustion, wear and tear of property used in the business, including a reasonable allowance for obsolescence. The basis for determining the amount of such depreciation deduction shall be the cost of such property, or, if acquired prior to October 15, 1935, the basis shall be the depreciated cost as of October 1, 1935;
g. The amount received as dividends from a corporation organized and existing under the laws of the State of Alabama and the amount received as dividends in liquidation paid from capital;
h. In the discretion of the Department of Revenue, in lieu of such deductions for losses or bad debts, a reasonable addition to reserves therefor and for extraordinary expenses;
i. In the case of savings and loan associations the amount paid out as dividends on the withdrawable shares thereof;
j. In computing the net income of credit unions for the purpose of the excise tax levied by this chapter, there shall, in addition to all other deductions allowed by law, be deducted the amount paid out as dividends on the withdrawable shares of such credit union; and
k. All financial institutions shall be allowed to carry back their net operating losses to apply as a deduction against prior income, and to deduct from succeeding years' income the excess loss, if any, that is not absorbed thereby. For purposes of this subdivision, the term net operating loss means the excess of allowable deductions over gross income. No net operating loss deduction (arising out of a net loss in an earlier or later year) shall be allowed in computing a net operating loss. Casualty losses and losses arising from theft, fraud and embezzlement, however, shall be deductible in computing the net operating loss. A net operating loss for a taxable year ending after the year 1952 may be carried back two years, then forward to the eight succeeding taxable years in chronological order; provided, that no part of the net operating loss which has been previously applied against income for one taxable year may be applied as a carryback or carryover to another taxable year. The net operating loss deduction allowed herein shall be the sum of the carrybacks and carryovers applicable to the taxable years. A successor financial institution shall be allowed to carry over and deduct from succeeding years' income, in the manner prescribed herein, the net operating loss of its predecessor. Refunds under the provisions of this subdivision shall be paid from the current year's receipts.
l. The amount of any aid or assistance, whether in the form of property, services or monies, provided to the State Industrial Development Authority pursuant to subsection (d) of Section 41-10-44.8 in order to induce an approved company to undertake a major project within the state.
(3) TAXABLE YEAR. A full period of 12 consecutive months constituting the fiscal year or calendar year of each financial institution ended last prior to April 1, 1935, and thereafter ended last prior to April 1 of each year in which such tax is to be assessed. In the case of any business hereby taxed conducted only during a fractional period of any year, a return shall be made as herein provided and the tax computed as herein provided, and such tax as assessed shall be an excise for the privilege of doing business in this state for such fractional year.
(4) STATE TAX YEAR. The calendar year.
(Acts 1935, No. 194, p. 256; Acts 1939, No. 48, p. 56; Acts 1939, No. 369, p. 496; Code 1940, T. 51, §425; Acts 1945, No. 130, p. 129; Acts 1945, No. 319, p. 520; Acts 1955, No. 568, p. 1232; Acts 1957, No. 639, p. 964; Acts 1978, No. 840, p. 1247, §1; Acts 1993, 1st Ex. Sess., No. 93-852, p. 95, §1.)