Amendment 373 of the state constitution provides that all real and personal business property will be assessed at 20 percent of its fair market value. That is, for property with a fair market value of $1 million, the assessed value would be $200,000. The combined state and local millage rate would then be applied to the assessed value. Inventory is exempt from property tax.
Property Tax Abatements:
The Tax Incentive Reform Act of 1992 (TIRA) allows qualified industries to receive abatements of non-educational property taxes for new businesses locating to Alabama and for expansions of existing facilities in Alabama. The property tax abatement is available for up to 10 years, except for data processing centers. To receive an abatement for property taxes, a project must meet certain qualifications and follow certain procedures, as determined by law and regulation.
Income Tax Capital Credit:
The Income Tax Capital Credit has been available since 1995. If a business entity invests in a qualifying project that meets certain requirements and is approved by the Alabama Department of Revenue, and maintains minimum annual requirements, the company may receive an annual credit against its income tax liability generated from the qualifying project. The capital credit is equivalent up to five (5) percent of the capital costs of the qualifying project, and can be utilized for a period of 20 years beginning during the year the project is placed in service. The credit is available to all types of business entities, including: S corporations, C corporations, limited liability companies (LLCs), partnerships, trust and sole proprietorships.
Enterprise Zone Credit or Exemption:
The Alabama Enterprise Zone Act (Act. No. 87-573), was enacted in 1987 to stimulate business and industrial growth in designated areas of the state that are considered economically depressed. The program provides state and local tax incentives and non-tax incentives to businesses and industries located within Alabama’s Enterprise Zones. The program is divided into two sections, Section 5 is a tax credit and Section 11 is an exemption. The enterprise zone credit is equal to $2500 per permanent new employee and can be applied against the income tax and/or business privilege tax liability. The exemption is a five year exemption of the entity’s choice of income tax, sales and use tax or business privilege tax. To qualify for either the credit or the exemption, a business must meet detailed requirements concerning site location and employee qualifications. The enterprise zone tax incentive is available under the Alabama Enterprise Zone Act, Sections 41-23-20 through 41-23-32, Code of Alabama 1975. To qualify a business must meet the following requirements:
- Must be located or locating within the boundaries of an Enterprise Zone.
- Must expand its labor force, make new capital investment, or prevent loss of employment.
- May not have closed or reduced employment elsewhere in Alabama in order to expand into an enterprise zone. A business that applies for the exemption must enter into an agreement with the Governor of Alabama.
- Must obtain an endorsement resolution approved by the appropriate local governing authority prior to participation in the program.
- Must be certified annually by the Alabama Department of Economic and Community Affairs.
The business privilege tax is an annual tax paid by corporations and limited liability entities (including disregarded entities) for the privilege of conducting business in Alabama. The tax base is the taxpayer's net worth apportioned to Alabama. For business entities new to Alabama, the tax accrues as of the date of organization, qualification or beginning to do business, and is due 45 days thereafter. The tax for existing entities accrues as of Jan. 1 of every taxable year, and is due March 15. The tax rate for business privilege tax is graduated, based on the entity's federal taxable income apportioned to Alabama. The rates range from $.25 to $1.75 for each $1,000 of net worth in Alabama. The minimum tax is $100. The maximum business privilege tax for most business entities is $15,000. The exceptions are for financial institutions, financial institution groups, and insurance companies that have a maximum business privilege tax of $3,000,000.
Sales and Use Tax: Alabama has four state rate differentials, which include:
- 1.5 percent rate for manufacturing and farm machinery,
- 2 percent rate for automotive vehicles
- 3 percent rate for food sold through vending machines, and
- 4 percent general rate for all other items.
Sales And Use Tax Abatements:
The Tax Incentive Reform Act of 1992 (TIRA) allows qualified industries to receive abatements of all state (except for coal mining projects, which is limited to 50% of the state tax) and the non-educational portion of the local sales and use tax for business locating to Alabama, and for expansions of existing facilities in Alabama. The sales and use tax abatement is used during the construction and equipping of the facility. To receive abatement for any or all of these taxes, a project must meet certain qualifications and follow certain procedures, as determined by law and regulation.
Sales and Use Tax Exemptions:
Alabama also has statutory exemptions from sales and use tax:
- Raw materials used by manufacturers or compounders
- Pollution control equipment
- Quality control testing and donations to charitable entities
- Exemption of certain aircraft maintenance parts
“Made in Alabama” Job Incentives Act:
Qualifying companies may receive a transferable income tax credit to offset import tariff costs during local construction process.
Brownfield Development Tax Abatements:
Gives cities and counties the ability to abate the following for properties enrolled in the Alabama Department of Environmental Management’s voluntary cleanup program:
- Non-educational city and county sales & use taxes;
- Non-educational state, city and county property taxes—up to 20 years;
- Mortgage and recording taxes.
Alabama Infrastructure Grant Program:
Funds are available to public entities for extension of water, sewer and road facilities to service new or expanding industries.
Alabama Industrial Access Road & Bridge Program:
Provides financial assistance to communities for industrial access to new and expanding industries. It allows for the construction of roads, bridges, etc. on public right-of-ways in conjunction with industrial projects.
Certified Capital Company Program (CAPCO):
Promotes investment in Alabama-based businesses by creating several venture capital funds required to invest in Alabama companies. Businesses that request CAPCO investment funding must meet certain criteria and requirements set by the Alabama Development Office. CAPCO financing, an alternative to conventional bank financing, can accommodate a slightly higher risk profile and provide a more flexible structure for growing businesses. Eligibility requirements include:
- Headquartered in Alabama or will be relocated to Alabama
- Principal business operations in Alabama or will be relocated to Alabama
- Have no more than 100 full-time employees, and 80 percent of employees are in Alabama or 80 percent of payroll is paid to employees in Alabama
- Industries that qualify for the CAPCO program may include manufacturing, processing, or assembling products; conducting research and development; or providing services.
Industrial Revenue Bonds:
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, etc.) Typically, tax-exempt IRBs have interest rates ranging from 70-85 percent of prime and are limited to $10 million per single issuance and $40 million total maximum per company. Taxable IRBs have an interest rate equal to conventional loans and have no limit. Terms for both are normally 10-20 years and can finance up to 100 percent of the project costs. The principal and interest on the bonds are paid solely from the funds derived from leasing or selling the facilities to the user company. Under most circumstances, upon complete payment of the bond issue, the lessee or user company acquires ownership of the industrial facility for a nominal sum.
Alabama Economic Development Loan Program:
he state has more than 2,300 commercial lending sources with assets of over $61.3 billion. The Alabama Economic Development Loan Program is used to work with commercial lenders for projects in non-entitlement communities. Fixed rate financing, at below market rates, is directly available through twelve Alabama Regional Councils.
Employer Education Credit:
A tax credit is statutorily available to employers who provide approved basic skills education programs to Alabama resident employees. The credit is 20 percent of the actual costs limited to the employer’s income tax liability. The requirements are:
- Program must have written approval from the Alabama Department of Education.
- Employees shall have been continuously employed for at least 16 weeks for at least 24 hours per week.
- Employer cannot receive or require reimbursement or any form of remuneration for any cost of education.
Renewal Community Program:
Created by Congress in 2000, provides federal income tax incentives to businesses that are located or will locate in designated areas. Three of the nation’s 40 Renewal Community areas are in Alabama. The sites include the Greene and Sumter Renewal Community, made up of both counties, the Mobile Renewal Community, which includes Prichard and a section of east Mobile, and the Southern Alabama Renewal Community, which includes Wilcox County and parts of Butler, Conecuh, Dallas, Hale, Lowndes, Marengo, Monroe and Perry Counties.
Alabama Industrial Development Training (AIDT):
State training program certified in compliance with ISO 9001:2000, the International Organization for Standardization Principle for Quality Management. Services are provided at no cost to employers or trainees. The workforce management system includes recruitment, assessment and training of potential employees, development and production of job-related training materials, provision of training facilities and delivery of job-specific services. It also provides certified manager training and supervisory and team leadership training. In 2012 AIDT became a division of the Alabama Department of Commerce.
Alabama Innovation Fund:
As part of the implementation of Accelerate Alabama, this fund was created to maximize the use of the State’s economic development resources by leveraging annual research and development expenditures by Public Universities within the State to generate resources which can be used to support economic development initiatives. The Alabama Innovation Fund supports and operates two (2) distinct programs. They are:
- The Renewal Program. Sixty percent (60%) of the annual funding, net of expenses, shall be distributed through grants to Public Universities which submit an Application under this chapter. The allocation to each Public University which makes application shall be based on each Public University’s federally financed research and development expenditures as reported by the National Science Foundation.
- The Research Program. Forty percent (40%) of the annual funding available to the Alabama Innovation Fund, net of expenses, shall be used to fund the Research Program. These funds shall be distributed, in keeping with the State’s goals to stimulate economic development as set out in Accelerate Alabama, to Public Colleges and Universities who submit an Application through a competitive process.
TVA Economic Development Loan Fund
A multimillion-dollar revolving loan program designed to stimulate investment and job creation in the TVA region. Loans must be co-sponsored by a power distributor, local government, or economic development agency and are made available to new and expanding industrial companies for fixed assets such as buildings, machinery, and equipment.
Community Development Block Grant/Loan Program
Provide a flexible source of annual grant funds for local governments—funds that they, with the participation of local citizens, can devote to the activities that best serve their own particular development priorities, provided that these projects either (1) benefit low- and moderate-income persons; (2) prevent or eliminate slums or blight; or (3) meet other urgent community development needs.
Appalachian Regional Commission and Delta Regional Authority Grants
Federal-state partnerships that work with the people of 37 Appalachian counties in Alabama and the Mississippi Delta region’s twenty Alabama counties to create opportunities for self-sustaining economic development and improved quality of life. Programs create thousands of new jobs, increase school readiness, improve local water and sewer systems, expand access to health care, assist local communities with strategic planning, and provide technical, managerial, and marketing assistance to emerging new businesses.
USDA Rural Development in Alabama
A variety of loan, grant, and loan guarantee programs, plus technical assistance in the areas of business and industry, cooperative development, rural housing, community facilities, water and waste disposal, and telecommunications, including distance learning and telemedicine.
Alabama New Market Tax Credit (NMTC) Program
- Provides state income tax, financial institution excise, or premium tax credits [State-level New Market Tax Credit] for investments and businesses in impoverished and low income communities.
- Qualifying location criteria follow Federal guidelines.
- The Community Development Entity providing the funds must have an active allocation agreement executed by the Community Development Financial Institutions Fund.
- Can be used in conjunction with federal NMTCs.
Alabama State Contact:
Alabama Department of Commerce
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.