§40-18-176. Nonresident shareholder composite returns.

(a) The Department of Revenue shall permit an Alabama S corporation to file composite returns and to make composite payments on behalf of some or all of its nonresident shareholders if there are one or more nonresident shareholders during any part of the taxable year. The Department of Revenue may permit composite returns and payments to be made by an Alabama S corporation on behalf of its resident shareholders.

(b) For purposes of this section, a "composite return" means an informational return similar in form to U.S. Treasury Department Schedule K-1 containing information concerning one or more Alabama S corporation shareholder's respective shares of income, deductions and losses passed through to them by virtue of their status as shareholders of an Alabama S corporation, any credit to which the shareholder is entitled to claim by virtue of the Alabama S corporation's payment of tax on his or her behalf pursuant to subsection (e), and containing other information as the Department of Revenue shall prescribe. For purposes of this section, a "composite payment" means a remittance of tax by the Alabama S corporation on behalf of the shareholder or shareholders to which the accompanying composite return relates, applying the highest marginal Alabama income tax rate applicable to individuals for the period in question.

(c) An Alabama S corporation shall file with the Department of Revenue, in the form prescribed by the Department of Revenue, the agreement of each nonresident shareholder of the corporation (1) to file a return and to make timely payment of all taxes imposed by this chapter on the shareholder with respect to the income of the Alabama S corporation, and (2) to be subject to personal jurisdiction in this state for purposes of the collection of unpaid income tax, together with related interest and penalties, from the nonresident shareholder. If the Alabama S corporation fails timely to file the agreements required by the preceding sentence on behalf of each of its nonresident shareholders, then the corporation shall, at the times set forth in subsection (d) for the filing of the agreements, pay to this state on behalf of each nonresident shareholder in respect of whom an agreement has not been timely filed an amount equal to five percent multiplied by the amount of the shareholder's pro rata share of the income allocated and apportioned to Alabama, as reflected on the corporation's return for the period in question. The payment made by the Alabama S corporation on behalf of a nonresident shareholder shall be considered a loan from the corporation to the shareholder, payable on demand, bearing interest from the date of the loan to the date of its payment, at the minimum "applicable federal rate" with respect to demand instruments, as provided under 26 U.S.C. § 7872.

(d) The agreements required to be filed pursuant to subsection (c) shall be filed at the following times:

(1) At the time the annual return is required to be filed for the first taxable year for which the Alabama S corporation becomes subject to this article, and

(2) At the time the annual return is required to be filed for any taxable year in which the Alabama S corporation had a nonresident shareholder on whose behalf the agreement has not previously been filed.

(e) Any amount paid by the Alabama S corporation to this state pursuant to subsection (a) or (c) shall be considered to be a payment by the shareholder on account of the income tax imposed on the shareholder for the year in question.

(Acts 1989, No. 89-837, p. 1671, §11; Acts 1997, No. 97-625, p. 1048, §3.)