What is Financial Institution Excise Tax ?

The Excise Tax on Financial Institutions is levied to give effect to the provisions of Federal law limiting the right of the states to tax national banking associations. It is not a tax on income but is an excise tax measured by income. The proceeds of the tax, after the expense of administration, are distributed one-half to the municipalities, one-fourth to the counties and one-fourth to the general fund of the State.

Who must file a Financial Institution Excise Tax return ? (Form ET-1)

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.

Act 99-665 requires all financial institutions conducting a credit card business through the issuance of credit cards to Alabama residents or businesses to file a financial institution excise tax return and pay any tax due.  No place of business is required.

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.

When should returns be filed ?

Excise Tax returns should be filed by April 15 following the end of the tax year. A taxable year is defined as a 12 month period which is the fiscal or calendar year of the institution last ended prior to April 1 of the year in which the tax is to be assessed.

Does Alabama allow an extension of time to file?

The Department will allow an extension of time to file to July 15. The financial institution must submit an extension request (Form ET-8), which will be approved or denied and returned to the financial institution.

In order for the extension request to be approved and remain valid, one-half of the estimated tax due shall be payable on April 15 and the remaining one-half, plus interest, shall be payable when the return is filed.

Who may file consolidated returns ?

Qualified corporate groups, shall have the option to file one excise tax return on a consolidated basis or to file separate returns. Qualified corporate groups electing to file one excise tax return on a consolidated basis shall be assessed a fee of $6,000 for the privilege of filing on a consolidated basis.

In order for financial institution members of a controlled group to be eligible to elect to file on a consolidated basis, the members would have to meet the following two tests:

1. Ownership test. Includable financial institutions will be connected through stock ownership with a common parent corporation. Financial institutions are includable corporations if:
   1. Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each of the includable corporations (except the common parent corporation) is owned directly by one or more of the other includable corporations; and
   2. The common parent owns directly stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of at least one of the other includable corporations.
      
2. Filing test. In order to be eligible for this election, each member must be a financial institution as defined in Section 40-16-1 and be required to file an excise tax return.

What is the current tax rate?

The Financial Institution Excise Tax rate is 6.5% of net income. 

How should financial institutions treat NOL's ?

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. 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 may be carried back two years, then forward to the eight succeeding taxable years in chronological order. A successor financial institution shall be allowed to carry over and deduct from succeeding years' income, the net operating loss of its predecessor.

What taxes are allowed as credits ?

1. State, county and city sales and use taxes paid on tangible personal property purchased and paid for by the institution for its consumption;
2. State utility taxes paid on telephone, electrical power, gas or water;
3. Rental or leasing taxes paid directly to the State for the privilege of leasing tangible personal property to others within the State of Alabama;
4. Increases in the city or county license taxes imposed upon financial institutions between July 10, 1943 and October 1, 1951.

Credits will not be allowed on any taxes not levied on the financial institution.

Examples of these taxes:

1. State, county or city sales or use taxes on items purchased for resale such as checks, promotional items or equipment;
2. Gross receipts taxes levied on the seller;
3. Rental or leasing taxes paid to others;
4. Federal taxes of any nature;
5. Taxes paid to contractors or others on equipment attached to real property or in the construction of buildings, etc.;
6. the tax imposed by this chapter.

Taxes not taken as a credit may be allowed as a deduction.

All interest is taxable including U.S. Government & State interest.

Dividend deduction for Alabama corporations and subs is allowed. (Not applicable to national banks).

Yes, contributions are limited to 5% of the net income.

Interest expense is allowed as a deduction, including interest paid on money borrowed to invest in Federal non-taxable items.

No carryover of credits are allowed.

The election to file consolidated return is irrevocable for that year.

Every financial institution which has income from business activity that is taxable both within and without this state shall allocate and apportion its income to this state.