Committee backs bill to restore immediate tax deduction for research costs, makes change retroactive

The Ways and Means General Fund Committee voted to give HB 163 a favorable report after adopting an amendment that makes the bill retroactive to Jan. 1, 2024, restoring immediate tax deductions for certain research and experimental expenditures.

Representative Virginia Faulkner, who presented the bill to the committee, said the measure would allow companies that spend money on research to take those deductions in the year they incur them instead of amortizing the costs over five years. “What this bill does is take our laws back for the deduction of of research, expenses, research and experimental expenditures,” Faulkner said. She also said, “I'm not aware of any opposition to the bill.”

The amendment inserted language applying the change to tax years beginning on or after Jan. 1, 2024. Committee members moved and seconded the amendment and approved it by voice vote. A later voice vote gave HB 163 a favorable committee report, meaning the committee is forwarding the bill to the next stage of the legislative process.

Why it matters: The change would decouple Alabama tax treatment of research and experimental expenditures from the federal requirement enacted as part of the Tax Cuts and Jobs Act, which generally requires taxpayers to amortize such costs. Faulkner told the committee that neighboring states have enacted decoupling measures and that restoring immediate deductibility is intended to keep research-oriented businesses from relocating to other states that have decoupled.

The committee discussion focused on the retroactive effective date and the fiscal effect. The bill packet included a fiscal note described in the meeting as positive for the state. The Department of Revenue drafted the amendment and is reported in the hearing to be supportive of the language used to establish retroactivity and the tax treatment for Alabama purposes.

The committee did not take a roll-call recorded vote on the amendment or on the final report; members approved both by voice vote. The transcript does not record any named opposition or a recorded tally for either the amendment or the final committee action.

The measure will proceed from the Ways and Means General Fund Committee with a favorable report. If enacted into law, the change would alter how businesses claim research and experimental deductions on Alabama tax returns for the specified tax years.

Details from the hearing: The amendment text discussed in the committee would make the change effective for tax years beginning on or after 01/01/2024 and stated that Alabama tax treatment under Title 40, chapters 16 and 18, shall not follow the amortization provisions of 26 U.S.C.; the committee read and replaced specific lines of the bill packet during the amendment process. The Department of Revenue was identified in committee discussion as the drafter of the amendment and supportive of it.

No additional business was recorded before the committee adjourned.