The Alabama Franchise Tax Repeal and Final Filing

The Alabama franchise tax was a levy imposed on most business entities for the privilege of operating or being organized within the state. This tax was historically calculated based on a company’s net worth and was a component of the broader Alabama Business Privilege Tax (BPT). It applied to various corporate structures doing business in Alabama, regardless of their profitability for a given year.

The Repeal of the Franchise Tax

Alabama has effectively eliminated its franchise tax for many businesses through a phase-out. This change was enacted via Act 2022-252, which targeted the minimum tax due under the Business Privilege Tax framework. The law first reduced the minimum tax from $100 to $50 for the 2023 tax year. The repeal became fully effective for taxable years beginning after December 31, 2023.

For these years, any business with a calculated franchise tax liability of $100 or less is now completely exempt from the tax. Consequently, these exempt businesses are also no longer required to file an annual Business Privilege Tax return, simplifying their state compliance duties. This repeal specifically targets those with a minimum liability; entities owing more than $100 will still have a tax obligation calculated as before.

Determining Franchise Tax Liability

For entities that still exceed the new exemption threshold, the franchise tax liability is determined based on the company’s net worth apportioned to Alabama. This tax applies to entities such as C corporations, S corporations, and limited liability companies (LLCs) that are organized in Alabama or otherwise conduct business in the state. The specific tax rate applied to the net worth is determined by the company’s federal taxable income apportioned to the state.

Based on the applicable income bracket, a rate ranging from $0.25 to $1.75 is selected and then applied for every $1,000 of the company’s net worth. The law established a floor and a ceiling for the tax amount. Before the recent changes, the minimum tax was $100, a figure that was due even if a company had no net worth or was not actively engaged in business. The maximum possible franchise tax liability was capped at $15,000 annually for most entities.

Required Information for the Final Filing

To complete a final franchise tax filing, businesses must gather specific financial data, primarily from their federal tax return. The key document is the balance sheet, such as Schedule L of the federal Form 1120 for corporations. This schedule provides the necessary figures for calculating the company’s net worth.

This information is reported on the Alabama Business Privilege Tax Return. Taxpayers can obtain the most current version of the BPT return and its accompanying instructions directly from the Alabama Department of Revenue’s official website. When completing the form, businesses will transfer the end-of-year balance sheet data to the appropriate lines to establish the tax base before applying Alabama’s apportionment factor and tax rates.

The Final Filing and Payment Process

Once the Business Privilege Tax return is completed, businesses have multiple options for submission and payment. The Alabama Department of Revenue encourages electronic filing through its online portal, My Alabama Taxes (MAT). This system allows for direct data entry or upload of the completed return and facilitates electronic payment, providing an immediate confirmation of receipt. Alternatively, businesses can mail the physical paper return to the address specified in the form’s instructions.

If a payment is due, a check or money order should be included with the mailed return. Beginning January 1, 2024, the Secretary of State Corporation Annual Report is no longer filed with the BPT return and is now a separate process handled directly by the Secretary of State’s office for specific corporate entities. The filing deadline for the BPT return and payment is March 15th for calendar-year taxpayers.