Changes and Challenges Affecting Individual Taxes

1. Changes and Challenges Affecting Individual Taxes Curtis E. Stewart Deputy Commissioner Alabama Department of Revenue

2. Discussion Points • ADOR Operations: Serving the Citizens of Alabama • Duties/Responsibilities • Organizational Structure • Gross Collections • ADOR Taxes and You: Current Topics Affecting Alabama Taxpayers • Individual Income Tax • Sales and Use Taxes • Property Tax

3. ADOR Operations Serving the Citizens of Alabama

4. ADOR Mission Statement • The Alabama Department of Revenue will effectively and efficiently administer the revenue laws in an equitable, courteous, and professional manner to fund governmental services for the citizens of Alabama.

5. Duties and Responsibilities - Generally • To inspect and examine any books, documents, records, or papers kept by any person, firm, corporation, trustee, or receiver • To make all assessments of taxes or penalties which it is authorized to enforce or collect and report the same to the Attorney General • To cause the deposition of witnesses residing within or without the state to be taken upon such notice to the interested party • To issue executions and writs of garnishment • To investigate the tax system of other states; to thoroughly inform itself upon the subject of taxation of the progress made in other states • To consult and confer with the Governor upon the subject of taxation and the administration of laws

6. ADOR Organizational Structure • Commissioner – Governor Appointed • Assistant Commissioner – highest state merited position • Deputy Commissioner – appointed positions within ADOR employees • Secretary – Tax Policy and Research Director currently fills this role • Legal Counsel – 16, commissioned as Assistant Attorneys General • Taxpayer Advocate – assists taxpayers with tax issues • 12 Operating Divisions • 9 Taxpayer Service Centers • 1150 employees

8. Taxpayer Service Centers • Auburn/Opelika Lee Murphy • Dothan Danny Hansen • Gadsden Lisa McKnight • Huntsville Russell Jones • Jefferson/Shelby County Ann Carlton • Mobile Emanuel Roberts • Montgomery Bill Hall • Shoals Mark Peterson • Tuscaloosa Jerry Bobo

9. ADOR is responsible for more than 50 different taxes but only a few comprise the bulk of our collections. (Amts. In Millions) • Ind. and Corp. Income Taxes $4,489 • Sales & Use Taxes $2,601 • Utility Taxes $ 645 • Motor Fuels Taxes $ 533 • Property Taxes (state portion) $ 389 • Tobacco Taxes $ 181 • Business Privilege Taxes $ 142

10. ADOR collects all but two major revenue streams for the State of Alabama. (Amts. In Millions) • Insurance Premiums Tax $316 • Liquor 145 • Beer 57 • Wine 12 • Total Alcoholic Beverages $215

11. Gross Collections • For fiscal year ending 2015, ADOR reported total revenue collections of $9,778,544,515.59. • For the fiscal year ending 2016, total collections were $9,897,310,625.21, an increase of $118,766,109.62 or 1.2%.

12. While none of these yearly increases are large, we are proud to say that for each year, over the past five years, we have grown total collections from the prior year anywhere from two to five percent.

13. ADOR Taxes and You Current Topics Affecting Alabama Taxpayers

14. Individual and Corporate Tax Division • The Individual and Corporate Tax Division is responsible for the administration of the income tax, excise tax and business privilege taxes for businesses and individuals. • They also are responsible for the Individual Electronic Filing program, PC Online Filing program and Corporate Electronic Filing program. • The following sections are a part of the Individual & Corporate Tax Division: Individual Income Tax, Corporate Income Tax, Business Privilege Tax, Financial Institution Excise Tax, Partnerships, Estate and Fiduciary Tax and Withholding Tax.

15. Individual and Corporate Income Taxes • Identity Theft • Mandate and Duty to Protect Sensitive Information • My Alabama Taxes Accessibility • 2-Factor Authentication to Log In • Electronic Filing • Over 90% Paperless Filings • Non-Traceable Origins • No-Cost to Submit Refund Returns • Profit Motive for Filing Companies

16. Individual and Corporate Income Taxes • Refund Fraud Complications & Tools • Excessive Refund Dollars Paid Out • Locked Account for Actual Taxpayer • File Early to Beat the Bad Guys • Voluntary Email Notice of Return Received • Voluntary Selfie Verification of Identity • Bogus Collections Calls • Non United States Origins • Threats of Arrest or Prosecution • Demands for Immediate Payments

17. Individual and Corporate Income Taxes • Individual Income Tax Enforcement • IRS Matching (Better & More Timely Data) • State Data Matching (Various Home Grown Data) • Treasury Offsets (Lowered Threshold / Other Taxes??) • State Refund Offsets for Other Debts • Planning Opportunities • Cash or Deferred Agreement (CODA) • State Itemized Deductions vs. Federal Standard Deductions

18. Sales and Use Tax Division • The Sales and Use Tax Division is responsible for administering, collecting and enforcing the following taxes and fees: Sales, Use, Lodgings, Rental, Contractors’ Gross Receipts, Cellular Telecommunications, Dry Cleaning Environmental Response Trust Fund, Hydro-electric Kilowatt Hour, Nursing Facility, Pharmaceutical Providers’, Pre-paid Wireless 9-1-1 Service Charge, Utility Gross Receipts, Utility Service Use, and Utility License (2.2%) • They also collect 222 Local Sales, Use, Rental and Lodgings taxes for 200 locations.

19. Sales & Use Tax • Sales Tax Versus Use Tax • Sales Tax – In-state purchases • Use Tax – Out of State purchases brought into state • More Remote Transactions versus Less In-person Transactions • Physical Presence Sales Tax Test (Quill Case) • Streamlined Sales and Use Tax Agreement (SSUT) • Digital Equivalent Transactions

20. Sales & Use Tax • Required Use Tax Reporting on Individual Income Tax Return • Difficulties with Compliance • Remote SSUT Features • Voluntary • No Exemptions • Flat 8% tax rate • 75% Distributions to General Fund • Purchasers May Apply for Refund of Excess Rate Charged

21. Sales & Use Tax • Non-SSUT Enforcement • Requirements for 4% reporting • New Egg Case • Changes to Local Nexus Rule

22. Property Tax Division • The Property Tax Division sets the standards and procedures for equalization of property values in the counties, and ensures property is taxed uniformly throughout the state. • Their purpose is to supervise and control the valuation, equalization, assessment of property, and collection of all ad valorem taxes. • The Property Tax Division also advises and assists county elected officials and their personnel, county commissioners, members of the boards of equalization, and other officials charged with mapping and appraisal duties, relating to laws, regulations, standards, and procedures governing property tax administration.

23. OPPAL – Optional Personal Property Assessment Link Act 2014-415 (HB 108); effective October 1, 2016 Optional Non-Itemized Short Form for Filing Business Personal Property Tax Return • Provides for an optional non-itemized short form for certain taxpayers to file their taxable personal property each year; requires the creation of a state portal that taxpayers may use to electronically file their Business Personal Property Return with any county in the state • Short form allows taxpayers who own taxable tangible personal property that has a total acquisition cost of less than $10,000 to file the short form in place of filing an itemized listing of their assets • Provides provisions for the audit of any short form account and penalties for falsely filing the short form when it is determined that the assets actually had a total acquisition cost greater than $10,000

24. Property Tax Issues • Duplicate Homestead Exemptions • Beach or Vacation Property • Inherited Property • Classification of Business Property as Personal Property • Vacation Rental Property • Delinquent Properties in State Inventory • Web Site Look-Up • Redemption Rights of Original Owners

25. President-Elect Proposed National Plans • Middle Class Tax Relief and Simplification Act • Middle class family with 2 children, 35% tax cut • Current number of brackets reduced from 7 to 3 • Business rate lowered from 35 to 15 percent • American Energy & Infrastructure Act • Leverage public-private partnerships and private investments through tax incentives

26. President-Elect Proposed National Plans • School Choice and Education Opportunity Act • Redirects education dollars to give parents choice of school • Ends common core • Expands vocational/technical education • Affordable Childcare and Eldercare Act • Allows deduction of childcare/elder care from taxes • Creates tax-free Dependent Care Savings Accounts

27. President-Elect Proposed National Plans • Repeal and Replace Obamacare Act • Fully repeals and replaces with Health Savings Accounts • Ability to purchase health insurance across state lines • States manage Medicaid funds

28. Summary • Reach out to ADOR as a tax resource • Take steps to protect your identity • Remit your consumers use tax • Use OPPAL to file business personal property tax returns

29. Resources/Contact Us • Administration Address: 50 North Ripley Street, Montgomery AL 36104 • Website: www.revenue.alabama.gov • Taxpayer Service Centers: http://revenue.alabama.gov/about-service-centers.cfm • Commissioner’s Office: 334-242-1175

30. Questions