Section 40-18-24.3 Taxation on Distributive Share of Interest, Dividends, Etc., of Nonresident Member of Qualified Investment Partnership

(a) Notwithstanding any other provision of this chapter to the contrary, including Sections 40-18-2 and 40-18-24.2, no income tax shall be due the State of Alabama from a nonresident member of a qualified investment partnership, or from the qualified investment partnership itself, with respect to the nonresident member’s distributive share of interest, dividends, distributions, or gains and losses from qualifying investment securities owned by the entity, as long as the nonresident member does not actively participate in the day-to-day management of the entity. Provided, however, that in the event a qualified investment partnership invests in the qualifying investment securities of an entity that is majority owned by a nonresident member of the qualified investment partnership, income tax shall be due by such nonresident member with respect to the member’s distributive share of any interest, dividends, distributions, or gains and losses from the qualifying investment securities of the other entity. For purposes of this section and Section 40-18-24.2, “majority owned” means ownership of more than 50 percent of the issued and outstanding voting stock of the other entity, applying the attribution rules of 26 U.S.C. §318.

(b) The terms “nonresident,” “member,” “qualified investment partnership,” and “qualifying investment securities” shall have the same meanings ascribed to them in Section 40-18-24.2.

(c) The Department of Revenue shall promulgate reasonable rules to effectuate the intent of this section, including rules permitting certain corporate members of qualified investment partnerships to be eligible for the provisions of this section. Further, if the Commissioner of Revenue determines that this section is being used in an abusive fashion principally to avoid Alabama income tax liability, the commissioner shall have the authority to promulgate rules to distribute, apportion, or allocate gross income in order to clearly reflect the income of any such entity engaged in such tax avoidance.