Legal Question in Tax Law in Alabama

Passive income from another state
I live and work in Alabama but my brother in Georgia has asked me to lend him some money to start a business and he would give me a 25% interest in the business. I understand this to mean I would get 25% of the net income (or loss) from the business. I have several questions about the tax implications of this.

1. Since I will not be actively involved in the business, my distribution from the business will be passive investment income. How is passive income earned in another state taxed in Alabama and at what rate (the alabama rate, the georgia rate or a combination)?

2. How would the answer to question #1 change if I live in a non-income tax state (such as Florida) but still work in Alabama? This is possible since I live and work only 12 miles from the Florida border.

3. If my 25% distribution from my brother's business is earned at the end of the calendar year but not actually paid until the next calendar year, what year do I report the taxes in? In other words, are tax payers on the accrual basis or the cash basis for state income taxes?

Thanks

Asked on 8/26/02, 3:14 pm

Michael McNair M. S. McNair, Attorney-at-Law, P.C.

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Re: Passive income from another state

You need to ask your CPA these questions. Not really a matter of tax law that I would deal with.

Answered on 8/26/02, 6:32 pm

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