Ala. Admin. Code r. 810-6-5-.04

Current through Register Vol. 42, No. 12, September 30, 2024

Section 810-6-5-.04 - Credit For Taxes In Other States

(1)Code of Ala. 1975, Section 40-27-1, Article V. 1, provides that "each purchaser liable for a use tax on tangible personal property shall be entitled to full credit for the combined amount or amounts of legally imposed sales or use taxes paid by him with respect to the same property to another state and any subdivision thereof. The credit shall be applied first against the amount of any use tax due the state, and any unused portion of the credit shall then be applied against the amount of any use tax due a subdivision."

(2) Notwithstanding Code of Ala. 1975, Sections 40-23-65 and 40-23-106, credit for legally imposed sales and use taxes paid to any other state or its subdivisions will be allowed against Alabama use tax due even if that state does not allow credit for sales and use taxes paid to Alabama or its subdivisions.

(3) The total credit allowed cannot exceed the taxes due the state of Alabama or its subdivisions. Any amount of tax paid to another state or its subdivisions which exceeds the amount of tax due Alabama with respect to the same property may then be credited against any local taxes due with respect to the same property. If the legally imposed taxes paid to another state or its subdivisions exceed the taxes due Alabama and its subdivisions, no further credit shall be allowed. The excess of taxes paid on a purchase cannot be credited against taxes due Alabama and its subdivisions on another purchase. No credit will be allowed for taxes paid in error which were not legally due another state or its subdivisions.

(4) The following example is provided to illustrate how credit shall be allowed for legally imposed taxes paid to other states and their subdivisions:

Purchase Price of Item A: $4,000 (no tax paid to another state or its subdivisions)

Purchase Price of Item B: $6,000 (7% total tax paid to another state and its subdivisions)

Total Purchases: $10,000

Assume that the local use taxes levied by Alabama subdivisions and applicable to Items A and B total 2 percent. (Local tax rates in Alabama vary.)

State of Alabama Use Tax Due on Items A and B: $400 (4% x $10,000)

Use Tax Due Subdivisions of Alabama on Items A and B: $200 (2% x $10,000)

Maximum Available Credit: $420 (7% x $6,000)

Alabama State Use Tax Eligible for Offset: $240 (4% x 6,000)

Local Use Taxes of Alabama Subdivisions Eligible for Offset: $120 (2% x $6,000)

Actual Allowable Credit (Total State and Local Taxes Eligible for Offset: $360

State Use Tax Due Alabama after allowance of allowable credit:

$160 ([4% x $10,000] less $240 = $160)

Local Use Tax Due Alabama Subdivisions after allowance of allowable credit: $80 ([2% x $10,000] less $120 = $80)

(a) In this example, 4 percent Alabama use tax totaling $400 is due on the total purchases of $10,000. The taxpayer is entitled to credit for up to $420 in legally imposed taxes paid to another state and its subdivisions with respect to Item B; however, the actual allowable credit cannot exceed total taxes due Alabama and its subdivisions with respect to Item B.

(b) The taxpayer must pay Alabama state use tax of $160 ($400 tax due on all purchases less credit of $240 for taxes paid to another state and its subdivisions since the credit can only be applied to Alabama tax due on Item B). The balance of $180 shall be applied against local use taxes due Alabama subdivisions with respect to Item B.

(c) The taxpayer must pay local use tax to Alabama subdivisions to $80 ($200 local tax due on all purchases less credit for $120. The $60 in taxes paid to another state and its subdivisions with respect to Item B cannot be used as a credit against taxes due Alabama and its subdivisions with respect to Item A).

Authors: Joe Cowen, Dan DeVaughn, Patricia A. Estes

Ala. Admin. Code r. 810-6-5-.04

Filed January 19, 1988. Amended: Filed February 26, 1996; effective April 1, 1996. Amended: February 3, 1998; effective March 10, 1998.

Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(a)(5), 40-23-31, 40-23-83, 40-27-1, Article V.1.