Income Tax Capital Credit:
Section 40-18-190 et seq., Code of Alabama 1975, provides for a capital credit over 20 years, calculated at 5 percent annually of the total capital costs of the qualifying project. The credit begins in the year the qualifying project is "placed in service" and is available to all types of business entities, including, but not limited to: C-corporations, S-corporations, limited liability companies (LLCs), partnerships, trusts, and sole proprietorships. The new or expanding companies must be involved in industrial, warehousing, and R&D activities, as well as data processing, renewable energy, and headquarters facilities, and meet employment and wage thresholds. Legislation in 2001 provided lower qualifying thresholds for designated "favored geographic areas."
Certain process and treatment facilities that reuse/recycle materials, headquarters facilities, and trade or business conducted on premises of the Alabama State Port Authority are also eligible for income tax credits.
The Tax Incentive Reform Act of 1992 (Chapter 9B, Title 40, Code of Alabama 1975) gives cities, counties, and public authorities the ability to abate: non-educational state, county, and city property taxes; state sales and use taxes; and non-educational county and city sales and use taxes. For property tax purposes, an abatement must be granted prior to placing the qualified project in service. Similarly, for sales and/or use tax purposes, an abatement must be granted prior to taking title to any equipment or construction materials in a taxable transaction.
Alternative and Renewable Energy Act of 2008:
Among other measures, the act provides tax credits and abatements for various energy-related expenditures. Small business/employee health insurance costs:
The plan allows business owners with fewer than 25 employees to deduct 150 percent of the amount they pay for employee health insurance premiums from their state income taxes. The plan also allows employees of small businesses earning $50,000 or less annually to deduct 150 percent of what they pay for health insurance from state income taxes.
AlabamaSAVES Revolving Loan Fund:
The energy revolving loan program for existing industries provides low interest rate financing for commercial and industrial energy-efficiency and renewable energy projects in Alabama.
Industrial Development Bonds:
Industrial development bonds are issued locally by cities, counties or their agents. In Alabama, Industrial Revenue Bonds (IRB's) may be used as long-term financing of up to 100 percent of a project for:
• Acquisition of land, buildings, site preparation and improvements
• Construction of buildings
• Acquisition and installation of furnishings, fixtures, and equipment
• Capitalizable soft costs (e.g., architectural and engineering, interest incurred during construction, cost associated with bond issuance, etc.)
Alabama's State Industrial Development Authority is authorized to sell bonds to make grants to counties, municipalities, local development boards or authorities to pay for site preparation for land owned or possessed by lease by these entities. Grants are available for accessing, excavating, surveying, clearing and grubbing, and draining the site, providing reasonable rehabilitation of buildings and other structures, and other necessary and appropriate site preparation.
In addition, the Industrial Access Bond Authority was established in 1985 to provide financial assistance for plan, design, and construction of access roads and bridges in order to provide or improve access to new and expanding industrial sites in Alabama. The proposed road project must be a public right-of-way and, when funded, constitutes part of the public highway and street system of the state.
Customized Industrial Recruiting and Training:
The Alabama Industrial Development Training (AIDT) program provides a total delivery system for screening and selecting trainees and for designing and implementing training for any new or expanding manufacturer. Training is specifically designed for each company's job requirements and startup schedule, at no cost to the company.
There is also a new 20 percent tax credit for costs of basic skills training for employees, not limited to new employees or relocating or expanding new firms.
Alabama has designated 28 enterprise zones in distressed areas of the state. The program provides for state and local tax credits/exemptions and non-tax incentives and also qualifies for "favored geographic areas" for income tax capital credits. There are two types of tax incentives in Alabama Enterprise Zones: a tax credit under "Section 5", and an exemption under "Section 11" ("5" and" 11" are the sections of the original law, Act 87-573). "Section 5" allows for a tax credit up to $2,500 per new permanent employee to be applied against the income tax liability and/or the business privilege tax liability of the entity qualifying for the enterprise zone credit. "Section 11" allows for an exemption(s) against certain taxes from enterprise zone operations. An exemption can be applied to the income, sales and use, as well as the business privilege tax liability.
Alabama's Renewal Community program provides for certain federal tax incentives/deductions for employers (businesses) located, locating, or expanding into designated renewal community census tracts within the state of Alabama.
Alabama does not levy property tax on inventory (Section 40-9-1 (23), Code of Alabama 1975). There are also exemptions for raw materials inventory (Section 40-9-1(13), Code of Alabama 1975) and finished goods inventory (Section 40-9-1(14), Code of Alabama 1975). However, inventory used for lease or rental purposes is subject to property tax.
Goods in Transit:
Goods in transit are exempted for up to 36 months prior to shipment out of state.
Equipment or materials purchased primarily for the control, reduction, or elimination of air or water pollution is exempt from sales and use tax (Sections 40-23- 4(a)(16) and 40-23-62(18), Code of Alabama 1975) and property taxation (Section 40-9-1 (20), Code of Alabama 1975).
Industrial Machinery and Equipment:
New and/or expanding industries may receive sales and use tax exemptions on all building materials, machinery, and equipment and ad valorem tax abatements of non-educational levies for up to 10 years.
Industrial Fuels and Raw Materials:
Materials or products that become an ingredient or component part of products sold by a manufacturer are treated as purchased at wholesale and are exempt from tax at that time.
Raw materials used by manufacturers or compounders as an ingredient or component part of their manufacturing or compounded product (Sections 40-23- 1(a)(9)b., and 40-23-60(4)b., Code of Alabama 1975) are specifically exempt from sales and use taxation. No sales and use taxes are charged on fuel used in manufacturing kilns; coal, coke, or wood residue; gasoline and lubricating oil; agricultural products sold in original form; and packaging products.
Exemption for quality control testing and donations to charitable entities:
The withdrawal, use, or consumption of a manufactured product by the manufacturer thereof, for use in quality control testing or to be donated to certain charitable entities, is not subject to the state sales tax (Section 40-23-I(e), Code of Alabama 1975).
Alabama State Contact:
Alabama Development Office
Alabama Center for Commerce
401 Adams Avenue
Montgomery, AL 36130
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.