Alabama Response to Bonus Depreciation

The federal economic stimulus act entitled “The Job Creation and Worker Assistance Act
of 2002” has several provisions that affect Alabama's income tax statutes. The State of
Alabama Department of Revenue will follow the federal changes where the Code of
Alabama contains a direct reference to the Internal Revenue Code (“IRC”).

Alabama will follow the federal changes on the so-called “bonus” depreciation.
This provision allows an additional 30% depreciation deduction for the first year in
which the asset is placed in service, in addition to the regular depreciation deduction.
This is not IRC Section 179 depreciation, but is merely an additional amount of regular
and AMT depreciation. Any Sectio n 179 amount is taken into account before making the
new computation. The asset must be acquired and placed in service after 9/10/01 and
before 9/11/04, and must have a recovery period of 20 years or less. (Water utility
property and certain qualified leasehold improvements may be able to have a longer
recovery period.) The provisions do not affect the decision whether the balance of the
asset is subject to the mid-quarter depreciation convention, nor do the provisions apply to
foreign and tax-exempt use assets.

The depreciation rules for automobiles have also changed. The allowance for
automobile depreciation has been increased by $4,600 under amended IRC Section 280F.
Alabama will also follow this provision.

If a taxpayer has filed the 2001 Alabama income tax return before 6/1/02, and did
not claim the new special depreciation allowance, the taxpayer can claim the bonus
depreciation by filing an amended return. Taxpayers can elect not to claim the bonus
depreciation by including a statement to that effect with the income tax return.
Generally, this election must be made by the due date of the return, including extensions.
Unless the taxpayer makes this election or is deemed to have made this election not to
claim the special depreciation allowanc e, the taxpayer must reduce the adjusted basis for
the asset by the amount of the allowance, even if the allowance was not claimed.
Taxpayers are deemed to have made the election not to claim the bonus depreciation for a
return filed before 6/1/02, on which the taxpayer claimed depreciation but did not claim
the special depreciation allowance, and for which the taxpayer did not file an amended
return to claim the special allowance prior to 4/15/03.