House Financial Services Committee Unanimously Approves HB 263

FEBRUARY 23, 2017 – House Bill 263, the legislation introduced by Rep. Ken Johnson (R-Moulton) at the request of the Alabama Bankers Association, was favorably reported by the House Financial Services Committee on Wednesday. Upon motion by Rep. Merika Coleman (D-Birmingham), seconded by Rep. Barbara Drummond (D-Mobile), committee members voted unanimously for the bill. This was the committee’s first meeting of the session, making it the first meeting for the committee’s two newest members: Rep. Drummond and Rep. Corley Ellis (R-Columbiana). Other committee members supporting the bill were Rep. Marcel Black (D-Tuscumbia), Rep. Mack Butler (R-Rainbow City), Rep. David Faulkner (R-Birmingham), Rep. Reed Ingram (R-Montgomery), Rep. Jimmy Martin (R-Clanton), Rep. Thad McClammy (D-Montgomery), and Rep. Rich Wingo (R-Tuscaloosa). The association appreciates the support of these legislators!

Since its introduction last week, industry advocates have been educating committee members on the bill using the following three major summary points:

  • Currently, a Department of Revenue (DOR) rule uses a simple, objective approach to determine whether a bank’s receipts, such as interest income, should be sourced to Alabama (or elsewhere) for income taxation purposes: receipts are sourced to the location of the property (if secured by real estate) or the location of the borrower (if unsecured).
  • But the same DOR rule also uses a confusing, subjective approach to determine whether a bank’s property, such as loans and credit card receivables, should be sourced to Alabama (or elsewhere) for income taxation purposes: sourcing is based on where the “preponderance” of five “substantive contacts” – solicitation, investigation, negotiation, approval, and administration – occurred.
  • House Bill 263 clarifies this process by requiring DOR to use the receipts sourcing method – where sourcing is based only on the location of either the property or the borrower – throughout the administrative rule, including any sourcing related to loans and credit card receivables. This approach minimizes, if not eliminates, disputes between banks and DOR over how bank receipts and property should be sourced for taxation purposes.

So what’s next for House Bill 263? Our efforts will now focus on persuading the House Rules Committee to place the bill on a House Special Order Calendar, which allows the bill to come before the full House on the House floor. Please contact a member of the House Rules Committee and ask them to add House Bill 263 to the Special Order Calendar:

  • Alan Boothe (R-Troy)
  • Ron Johnson (R-Sylacauga)
  • James Buskey (D-Mobile)
  • Elaine Beech (D-Chatom)
  • Barbara Boyd (D-Anniston)
  • Anthony Daniels (D-Huntsville)
  • Randy Davis (R-Daphne)
  • Victor Gaston (R-Mobile)
  • Nathaniel Ledbetter (R-Rainsville)
  • Paul Lee (R-Dothan)
  • Jimmy Martin (R-Clanton)
  • Connie Rowe (R-Jasper)
  • David Standridge (R-Hayden)
  • Pebblin Warrant (D-Tuskegee)

Contact information for these legislators is available by clicking here.

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. The bill was passed by the full House this week and now awaits approval by a Senate committee.

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. These bills are in position to be considered by the full House and the full 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.

House Bill 314 by Rep. Ken Johnson (R-Moulton): Under current law, lenders licensed under the Alabama Small Loan Act can loan up to $1,000 to a single customer at a maximum monthly interest rate of $20 and for a maximum loan term of 12 months. This bill would allow these same lenders to loan up to $1,500 to a single customer, would set the maximum monthly interest rate at $26, and would set a minimum loan term of 3 months.

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. The positions of these groups, including ABA, remain unchanged.

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 office’s 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.

As of the end of the sixth legislative day, a total of 316 bills have been introduced in the House of Representatives and a total of 245 bills have been introduced in the Senate.

The Legislature has met for six 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 the seventh legislative day on Feb. 28 at 1 p.m. and 2 p.m. respectively.

Questions or comments? Email Jason Isbell,  vice president of Legal and Governmental Affairs.