(1)
Purpose. This rule sets forth guidelines and
procedures for claiming, applying, and transferring the rail credit provided
under the Railroad Modernization Act of 2019, as codified in Chapter 11C of
Title 37 of the Code of Ala. 1975.
(2)
Definitions. For
purposes of this rule, these terms shall be defined as follows:
(a) DEPARTMENT - The Alabama Department of
Revenue.
(b) ELIGIBLE TAXPAYER -
Any class II or III railroad that is awarded a rail credit
certificate.
(c) ELIGIBLE
TRANSFEREE - A taxpayer to which any or all portion of a rail credit is
transferred.
(d) TAX CREDIT
CERTIFICATE - A form or letter issued to the eligible taxpayer, that includes
information about the qualified railroad rehabilitation project and the total
amount of credit issued to the eligible taxpayer.
(e) TRANSFER TAX CREDIT CERTIFICATE - A
certificate issued by the Department to an eligible transferee, which includes
information about the qualified railroad project for which a tax credit
certificate has been issued, and the amount of credit transferred to the
transferee.
(f) TRANSFEROR - Any
eligible taxpayer who transfers any or all of their portion of the credit to
the transferee.
(g) TRANSFER
STATEMENT - A statement filed with the Department by the transferor that
identifies the transferor and each eligible transferee, the amount of tax
credit transferred to each eligible transferee, and the effective date of the
credit.
(h) TRANSFER AGREEMENT - A
contract, either in writing or in an electronic format, between the transferor
and the eligible transferee that includes the following:
1. Description and the address of the rail
carrier that has been issued a tax credit certificate.
2. The date the project was completed and
placed in service.
3. The amount of
credit being transferred to each transferee.
4. The purchase amount of the
credit.
5. A statement by the
eligible taxpayer agreeing to sell, transfer, convey, assign, and deliver the
credit to the buyer along with an acknowledgement from the buyer agreeing to
purchase, acquire, and accept the credit from the owner.
(3)
Qualified
Claimants. The credit may only be claimed by an eligible taxpayer
holding a tax credit certificate or an eligible transferee that has been issued
a transfer tax credit certificate. Tax credits granted or transferred to a
pass-through entity must be claimed at the entity level. Tax credits granted or
transferred to a single member limited liability company or a Q-sub that is
disregarded for federal income tax purposes, must be claimed by the owner of
the disregarded entity.
(4)
Application of the Credit. The eligible taxpayer and
eligible transferee may apply the entire tax credit against the income tax
liability imposed by Chapter 18 of Title 40 of the Code of Ala.
1975, for the taxable year in which the qualified railroad
rehabilitation project is completed and placed in service. If the placed
in-service date is later than the completion date, then the placed in-service
date must be used in determining the taxable year in which the tax credit can
be utilized. If the tax owed by the eligible taxpayer is less than the tax
credit, the eligible taxpayer is entitled to claim a refund for the difference.
The tax credit cannot be carried forward to any subsequent tax year.
(5)
Transferability.
The eligible taxpayer may transfer any or all the credit on or after the
issuance date listed on the tax credit certificate. Once the credit is
transferred, only the eligible transferee may utilize the transferred credit
and the credit cannot be transferred again. The transferred credit cannot be
refunded or carried forward by the eligible transferee.
(6)
Value of the Transferred
Credit. Any tax credit transferred shall be at the value of at
least (85%) eighty-five percent of the present value of the tax credits. The
present value shall be determined by discounting the face value of the tax
credit to account for the time value of money considering the time between the
date the tax credit is transferred, and the due date of the eligible
transferee's Alabama Income Tax return for the tax year the credit must be
claimed using a discount rate equal to the federal short-term rate plus (3%)
three percentage points in effect as of the first of the month the tax credit
is transferred.
Example:
A qualified railroad rehabilitation project is placed in
service June 15, 2020. The eligible taxpayer transfers the credit to the
eligible transferee with a face value of $1,000 on October 30, 2020, when the
discount rate of interest equals four percent (4%). The eligible transferee is
a calendar year end filer with an Alabama income tax return due date of April
15, 2021. For purposes of applying the statutory 85% of present value
limitation, the present value of the tax credit is calculated by multiplying
the tax credit's face value by 1 divided by (1+6/12 of 4%) or $1,000 x [1/1 +
(6/12 x 4%)] or $1,000 x 1/1.02 or $1,000 x 98%, which equals a present value
of $980. The $980 present value is then multiplied by 85% to establish a
minimum sale price for the tax credit of $833.33.
(7)
Reporting
Requirements. The transferor must file a transfer statement with
the Department along with a copy of the executed transfer agreement(s), a copy
of the tax credit certificate, and a $1,000 fee for each eligible transferee
listed on the transfer statement no later than 30 days after the transfer
agreement has been executed. The Department will issue a transfer tax credit
certificate to each eligible transferee for the amount listed on the transfer
statement within 30 days after receipt of the executed transfer agreement,
along with the supporting documents.
(8) The Department may examine records,
books, or other relevant information maintained by the taxpayer for the purpose
of computing and determining the correct amount of the credit.
