House Bill 419, the Financial Institution Excise Tax Reform Act, was amended and favorably reported by the House Ways & Means – General Fund Committee on Wednesday. Thanks to the good work of the bill’s sponsor, Rep. Kyle South (R-Fayette), committee members had no questions about the 33-page bill, which passed with unanimous bi-partisan support. The amendment was a technical fix related to credit unions.
As a reminder, the FIET Reform Act:
- Uses the federal definition of “taxable income” as the base calculation for the FIET;
- Repairs constitutional defects related to deductions allowed for subsidiary entities;
- Reduces administrative burdens on financial institutions filing consolidated returns;
- Changes the tax distribution formula from location-based to population-based; and
- Mirrors FIET and federal income tax filing dates and payment schedules.
Generally speaking, there are three issues that are still on the association’s radar relative to this legislation.
- First, the impact of the legislation on credit union taxation is largely unknown. With the help of the Department of Revenue (DOR) and the League of Southeastern Credit Unions, the association is working towards drafting language that would make the bill revenue-neutral for credit unions just as it does for banks.
- Second, there is some concern about how the change in revenue distribution will impact cities and counties. Under current law, FIET revenue is distributed to cities and counties based in part on where the revenue is earned. That causes an administrative nightmare for the DOR and for banks. Under this bill, FIET revenue is distributed based solely on the population of a city or county. Consequently, if an area is over-banked relative to its population, it is likely to lose a little bit of revenue, just as areas that are under-banked relative to population are likely to gain revenue. If this revenue impact becomes problematic, there are several other distribution options available.
- Third, there has been a lot of discussion about whether some of the taxpayer-friendly provisions of the FIET Reform Act could, or should, apply to corporate income taxpayers. The association and DOR agree that our statutes do not apply to corporate income taxpayers and that any attempts to modify corporate income tax statutes should, for multiple reasons, be done in a separate bill. But the desire to use House Bill 419 as a “vehicle” to make these changes could be lurking around the bend.
As was discussed last week, anyone connected with the preparation, calculation, and filing of your bank’s state and federal taxes should look at this legislation and provide the association with a list of concerns. The legislation can be viewed here. The legislation is now in position to be considered on the House floor.
As always, Capitol Notes provides readers with a brief summary of legislation that might impact Alabama’s banking industry. Those summaries are as follows:
House Bill 101 by Rep. Kerry Rich (R-Albertville) and Senate Bill 54 by Sen. Shay Shelnutt (R-Trussville) adopts the National Association of Insurance Commissioners’ Insurance Data Security Law. Federal data security regulations already apply to financial institutions, including to those institutions’ insurance-related subsidiaries. To ensure that this legislation did not also apply to those entities, the association, working with the American Bankers Association, drafted an amendment exempting financial institutions from the provisions of this bill. The amendment was unanimously adopted in both the House and Senate versions of the bill. Both bills have passed out of their houses of origin. The House bill was referred to the Senate Banking and Insurance Committee, while the Senate bill was referred to the House Technology and Research Committee. The Senate bill passed out of committee on Wednesday and will be considered on the House floor on Tuesday.
House Bill 133 by Rep. Jim Hill (R-Pell City) would require state taxes or fees not already distributed to the Education Trust Fund or State General Fund to be deposited in the State General Fund unless those taxes or fees are constitutionally required to be distributed to a specific fund for a specific purpose. As introduced, this bill would likely divert assessment fees paid by state-chartered banks away from the State Banking Department and into the State General Fund, since assessment fees are not required by the constitution to be distributed to the State Banking Department. The association has historically opposed efforts to divert bank assessment fees away from the State Banking Department. Several other agencies are similarly impacted, and the association is working with them, as well as with the State Banking Department, to amend the legislation. There has been no activity on this bill for some time. The association will continue to monitor this legislation.
House Bill 139 by Rep. K.L. Brown (R-Jacksonville) would require a lender that holds all or part of a payment for an insurance claim to, upon request by the insured for payment, either issue the payment or provide a detailed notice of why the payment is being withheld and the steps the insured needs to take for the payment to be released. As currently written, the lender would have 10 days to provide information to the insured or risk paying 20 percent interest on any insurance proceeds held by the lender. This legislation is allegedly in response to issues that arose in the aftermath of the tornadoes that impacted Jacksonville and the surrounding areas last May. The association is in discussions with the sponsor and other interest groups, such as the Homebuilders Association of Alabama, about the legislation and hopes a compromise can be reached, especially with respect to the timelines and interest rate. The association, working with the Homebuilders Association of Alabama, amended this bill in the House Insurance Committee this week. The amendment increases the notice period to 14 days, decreases the interest rate to 10%, and makes clear that financial institutions retain all rights under current law and under agreements with homeowners, including the right to retain insurance proceeds when distributing them is economically unfeasible.
House Bill 140 and House Bill 420 by Rep. Kyle South (R-Fayette) would allow banks and the Department of Revenue to voluntarily enter into an agreement to share certain identification information for bank customers who have been determined by the department to be delinquent taxpayers. Under current law, over half of all garnishment notices sent to banks are returned because the subject of the notice is not a bank customer. In theory, a data match agreement between a bank and the department would eliminate these “useless” notices. So far, the department has been extremely accommodating in helping the association work out the industry’s causes for concern. Discussions with the department resulted in the introduction of a second bill, House Bill 420. The “new” bill makes clear that the data match agreements are voluntary, allows the department and an institution to include in an agreement the amount of money the department will pay to reimburse the institution for conducting a data match, and removes language that would otherwise have constricted how an institution used information that a customer was potentially subject to a future garnishment. The two bills are in separate committees, but this new, agreed-upon language will be included in any legislation that moves forward. The House Financial Services Committee favorably reported House Bill 420 earlier this week. It is now in a position to be considered on the House floor.
House Bill 162 by Rep. Chris Blackshear (R-Phenix City) and Senate Bill 127 by Sen. Shay Shelnutt (R-Trussville) is the Future Advance Mortgage Protection Act. As introduced, the bill would make clear that future advance mortgages are created upon their execution and not, as the state Supreme Court has ruled, when funds are actually advanced. Discussions with the Homebuilders Association of Alabama resulted in additional language being added to the bill to provide clarity on the subject of lien priority for obligatory or optional future advances. A committee substitute to these bills was adopted in the House and Senate last week. Conventional wisdom would hold that the Supreme Court’s ruling from March 29 leaves banks in a better position than these pieces of legislation, meaning these bills will likely not advance any further.
House Bill 304 by Rep. Merika Coleman (D-Birmingham) and Senate Bill 181 by Sen. Shay Shelnutt (R-Trussville) makes clear that certified real estate appraisers can perform a valuation for certain financial transactions involving real estate. While federal law allows valuations to be performed by anyone in certain situations, current state law provides that real estate appraisers can only perform appraisals, effectively eliminating professional real estate evaluators from the current valuations market. Coincidentally, the national Appraisers Standards Board updated the Uniform Standards of Professional Appraisal Practice on Friday, April 5, to allow appraisers to perform evaluations beginning Jan. 1, 2020. The House bill will be taken up on the House floor on Tuesday.
House Bill 419 by Rep. Kyle South (R-Fayette), the Financial Institution Excise Tax Reform Act, makes numerous technical changes to the Financial Institution Excise Tax statutes (see above for more information). The bill was amended and favorably reported by the House Ways and Means – General Fund Committee on April 17.
House Bill 424 by Rep. Joe Lovvorn (R-Auburn), the Alabama Innovation Act, provides a tax credit for research conducted in Alabama. Modeled after the federal research and development tax credit, the tax credit is available to Alabama businesses for qualified research expenses incurred by Alabama companies that spend funds and resources in-house or pay Alabama research companies to conduct qualified research for new or improved products or services. The combined amount of credits cannot exceed $25 million, or $2 million per taxpayer, in a single year. Credits can be issued against the state income tax or the Financial Institution Excise Tax. Approved research activities involve a variety of research and development avenues, including research types approved by the Alabama Department of Commerce. Note that any credits to offset FIET liability will be limited to the state portion of the tax only.
Senate Bill 106 by Sen. Andrew Jones (R-Centre) would allow a member of any branch of the Armed Forces of the United States to contract with a financial institution to obtain a loan or open a checking or savings account. Generally speaking, current state law prohibits anyone under the age of 19 from entering into a contract, including a contract with a financial institution. A person may join the Armed Forces at age 17 with parental consent, or at age 18 or older without parental consent. This bill was amended on the Senate floor to, one, make clear that once a person signs a contract pursuant to this new law, that contract remains valid even if the person subsequently leaves the Armed Services, and two, to permit a financial institution to require a person signing a contract pursuant to this new law to present in person a valid form of military identification. The bill passed the Senate on April 18.
As of the end of the 11th legislative day, legislators have introduced 793 bills – 482 in the House and 321 in the Senate – and 158 resolutions. So far, 21 of these measures have been enacted into law. The 2019 Regular Session can last for no more than 30 legislative days and must end on or before June 17.
The Legislature will reconvene for its 12th legislative day on April 23.
Questions or comments? Contact Jason Isbell, ABA’s VP of Legal and Governmental Affairs, at firstname.lastname@example.org.