Alabama Tax Credits
Income Tax Capital Credit Title 40, Chapter 18, Article 190 through 203
Intending to create jobs and stimulate business and economic growth, Alabama provides income tax capital credits for approved projects. The credit is up to 5% of the capital costs of a qualifying project and is used to offset the Alabama tax liability or excise tax generated by the project income each year for up to 20 years. Generally, with a few exceptions, this credit cannot be carried forward and can never be applied to prior periods causing a tax refund.
A qualifying project must be a new investment at a new site in the state or that will expand the capacity and the number of employees at an existing facility. A company may have multiple qualifying projects, even multiple projects at the same site as long as it meets the statutory qualifying requirements for each project. However, attention should be given to maintaining adequate records to document the income, number of employees and wages separately, especially within the same facility.
An additional small business, defined as having full time employees of 100 or less, prior to the addition being placed in service also qualifies.
Required business activities must also must be met to qualify for this credit. Generally, the North American Industrial Classification System (NAICS) dictate which industry activities qualify as indicated in the following categories (1-23):
After the required business activities test, there are minimum investment requirements, minimum job creation requirements and minimum average base wage requirements. These requirements vary based on whether or not the project is located in a favored geographic area, See List. Favored geographic areas require less investment amounts, fewer jobs to be created and less average base wage. In some cases, the entire county is considered a favored geographic area. However, in many counties only certain enterprise zones within the counties are favored geographic areas. The below table explains the differences afforded to each category (1-23) above for investment and minimum job requirements:
Minimum Investment Minimum No. Jobs
Category Favored Regular Favored Regular
1-15, 18-20 $ 500,000 $ 2,000,000 5 20
Small Business* $1,000,000 15
16 $2,000,000 50
17 $1,000,000 $ 5,000,000 5 20
21 $5,000,000 $20,000,000 20 50
22 $100,000,000 5 20
23 $5,000,000 5 20
*Small Business is defined earlier in this section and overrides other requirements if the company meets this definition.
The new jobs definition requires a net increase in jobs not later than one year after the project is placed in service for most industries, except warehousing activity. Warehousing activity can delay calculating new jobs added up to two years after the project is placed in service. The employees working on the project must have not worked for the entity/company in Alabama prior to the project being placed in service. See Section 40-18-190(10). Should a company reduce workforce within two years prior to placing a project in service, only the number of employees in excess of the number of employees who worked at the existing facility prior to the reduction shall be deemed to be new employees for the capital credit.
Finally, the average wages for all jobs created for the project cannot be less than the base wage requirement no later than one year after the project is placed in to service and during each future year the company claims the capital credit on their tax return. The average hourly wage is calculated annually, updated on January 1 and does not include benefits, only includes base wage, overtime and bonuses. See 2015 Wages by County. For projects located in favored geographical areas, the annual indexed hourly wage is $13.07 or the average hourly wage of the county where the project is located, which ever is less. For all other project locations, the annual indexed hourly rate is $16.33 or the average hourly wage of the county where the project is located, which ever is less. The applicable average hourly wage calculation becomes the target base wage requirement for the project.
If the company passes all the requirements, they may take the appropriate annual tax credit on their income tax return. Our firm is available to advise companies expanding to Alabama and complete all the required forms annually.
Property Tax & Sales Tax Abatements Chapter 9B, Title 40
Alabama cities, counties, and public industrial authorities have the ability to abate the following taxes:
A project must meet certain qualifications and follow proper procedures spelled out in laws and regulations to receive these abatements.
For Data Processing Centers, the laws and rules differ as follows:
Data processing centers are also eligible for abatement of state and non-educational local sales and use taxes associated with with constructing and equipping a project for an extended time based on the above criterion.
Required business activities must also must be met to qualify for this credit. Generally, the North American Industrial Classification System (NAICS) dictate which industry activities qualify as indicated in categories (1-23) from the previous section and the additional activities specified below:
The warehousing and utility activities are the only projects that have thresholds or limiting investment amounts. Warehousing projects can be $1 million or more in favorable geographic areas. However, the minimal investment for other geographic areas is $5 million. Utility activities that produce electricity from alternative energy resources must invest at least $100 million unless they are using hydropower production, which only requires a minimal investment of $5 million.
An additional investment by a company expanding current facilities must be the lesser of $2 million or 30% of the original facilities investment.
Again, cities and counties have the ability to abate the following:
In Alabama, corporations and limited liability entities pay for the privilege to operate there. The base of the tax is the taxpayer's net worth tax apportioned to Alabama. The tax accrues at the date of organization, or beginning to do business, qualification, and it is due in 30 days thereafter. The tax for existing entities accrues as of January 1 and every tax year, and is due March 15.
This Business Privilege tax is gradual and based on the the company's federal taxable income apportioned to Alabama. Rates range from $0.25 to $1.75 for each $1,000 of net worth in Alabama with a $100 minimum. The total cap is $15,000 for most business entities. The exception is for insurance or financial institutions. Their maximum tax is $3 million.
There are Business Privilege Tax deductions for the following and related explanations: