FEBRUARY 17, 2017 – The Alabama Legislature concluded its second week of the 2017 regular legislative session yesterday. But before the House adjourned the fourth legislative day, Rep, Ken Johnson (R-Moulton) introduced House Bill 263, a bill very important to the Alabama Bankers Association and its members.
In a nutshell, one component of a Department of Revenue tax rule that impacts banks has proven difficult to administer over the years. Specifically, thanks to some very confusing and subjective guidelines, the department and multi-state banks have disagreed over how to classify which of a bank’s loans and credit card receivables should be considered part of a bank’s property in Alabama or in other states. To alleviate the confusion, the department changed the rule to exclude loans and credit card receivables from the calculation altogether. Unfortunately, that decision, which becomes effective Dec. 31, heavily penalizes multi-state banks that have a relatively high amount of brick-and-mortar assets in the state. In fact, the department reports that their new rule would increase bank taxes by nearly $10 million starting next year.
The association’s position is that Alabama tax policy should incentivize, not penalize, these institutions, all of which serve as local and state economic engines. But we also agree with the department reducing, if not eliminating, these types of disagreements is good for both the department and the taxpaying banks.
Rep. Johnson’s bill, HB263, offers just such an alternative solution. And rather than re-inventing the wheel, HB263 requires the department to modify the rule so that loans and credit card receivables are sourced in the same manner as the rule already requires interest income from loans and credit card receivables to be sourced: if the credit is secured by property, sourcing is based on the location of the property; if the credit is unsecured, sourcing is based on the location of the borrower.
This bill solves the department’s problem in a way that doesn’t raise taxes on banks that have heavily invested in property in Alabama. If anyone pays more taxes under HB263, it will likely be out-of-state credit card banks, since under the department’s rule they would likely not have shown any property in Alabama whatsoever.
The bill was assigned to the House Committee on Financial Services, which Rep. Johnson chairs. The committee will consider the bill next Wednesday.
Other bills that might impact the state’s banking industry include the following:
House Bill 70 by Rep. Bill Poole (R-Tuscaloosa): With a few notable exceptions, this bill lowers the age of majority in Alabama from 19 years to 18 years. The bill wouldn’t change anything related to the criminal code’s “youthful offender” provisions, and it doesn’t impact the age that one can legally purchase alcohol or tobacco products. But changing the age of majority likely also changes the age at which a person can, for example, enter into a loan agreement with a financial institution. In fact, language that expressly prohibited someone under the age of 19 from “entering into a contract for the loan of money” was, along with other language, removed by the House Judiciary Committee in a substitute version of the bill that the committee approved earlier this week. This bill is now in a position to be voted on by the full House.
House Bill 138 by Rep. Juandalynn Givan (D-Birmingham) and Senate Bill 110 by Sen. Cam Ward (R-Alabaster): These bills would adopt the Revised Uniform Fiduciary Access to Digital Assets Act, a national uniform law that extends the traditional power of a fiduciary to manage tangible property, including management of a person’s digital assets like computer files, web domains, and virtual currency (but not necessarily email, text messages, or social media). These bills were also introduced in 2016, and are a product of the Alabama Law Institute. In the last three years, this legislation, known as UFADAA, has been enacted in 22 states, including Tennessee and Florida. In 2017, it has already been introduced in a total of 17 states, including Alabama. Earlier this week, these bills were favorably reported by the House and Senate Judiciary Committees, and are now in position to be considered by the full House and Senate.
House Bill 159 by Rep. Patricia Todd (D-Birmingham): This bill doubles the fee required to record mortgages, deeds of trust, and other instruments of like character. Currently, the recording fee is 15 cents for every $100 of indebtedness, with 1/3 of the revenue retained by the county and 2/3 of the revenue distributed to the State General Fund. Under this bill, the recording fee would be 30 cents for every $100 of indebtedness, with 19 percent retained by the county, 35 percent allocated to the State General Fund, 23 percent to the Alabama Housing Trust Fund, and 23 percent to the Alabama Homebuyers Initiative. This is the second year in a row that this legislation has been introduced. Last year, the association joined the Realtors Association and the Homebuilders Association in opposing the bill. The positions of each of these groups, including ABA, remain unchanged.
Senate Bill 67 by Sen. Linda Coleman-Madison (D-Birmingam): This bill would adopt a process known as “Mandatory Unitary Combined Reporting” for state income tax purposes. Though the legislation generally deals with corporate income taxpayers, banks that pay the Financial Institution Excise Tax should also be concerned by this legislation because it gives the Department of Revenue very broad discretion to combine a financial institution – even one not doing business in Alabama – with one or more Alabama corporate income taxpayers; thus the “unitary” nature of the process. This bill has been introduced in each of the last few regular sessions, and the Alabama Bankers Association plans to join nearly every other trade association representing business interests in opposing its passage.
Senate Bill 91 by Sen. Arthur Orr (R-Decatur): Known as the Alabama Protection and Privacy Act of 2017, this bill would provide for the protection of sensitive personally identifying information and notice to individuals whose personal information has been breached. Alabama is one of very few states without some type of data breach notification law, and this legislation is part of the Attorney General’s Office 2017 legislative package. Because they must comply with similar provisions of federal law, including the Gramm-Leach-Bliley Act, financial institutions are exempt from the requirements of this bill. This bill has already been favorably reported by the Senate Judiciary Committee, and is now in position to be voted on by the full Senate.
The Legislature has met for four legislative days. The 2017 regular session can last for no more than 30 legislative days and must conclude on or before May 22.
The House and Senate will convene for the fifth legislative day next Tuesday at 1 p.m. and 2 p.m. respectively.
Questions or comments? Email Jason Isbell, ABA’s Vice President of Legal and Governmental Affairs.