State Specific Tax Incentives

Alabama

Capital Credit
A capital credit is available to be applied to the income tax liability generated by income from a project approved by the Alabama Department of Revenue. The capital credit is available each year, for 20 years. The capital credit is calculated at five percent (5%) of the total capital costs of the qualifying project and the credit begins in the year the qualifying project is “placed in service.” Four statutory requirements must be met to qualify for the credit:

The qualifying project must be either a “headquarters facility” or an “industrial, warehousing, or research activity.”
Capital investment of not less than $2 million for new, expansion or headquarters facility projects; not less than $1 million for small business addition projects; or not less than $500,000 for favored geographic area projects
At least 20 new employees at new, expansion or headquarters facility projects; 15 new employees at small business addition projects; or five new employees at favored geographic area projects
New employees must be paid either an avergae hourly wage of at least $8.00, or an average total compensation of not less than $10.00 per hour, including benefits

Alabama Enterprise Zone Credit
To stimulate business and industrial growth in depressed areas of the state, Alabama offers certain tax credit incentives to businesses that locate or expand within a designated enterprise zone. Please note that while the program applies to tax incentives, it is administered by the Alabama Department of Economic and Community Affairs which will determine whether the project meets the program requirements and will provide certification to the Alabama Department of Revenue. Qualified participants will be eligible for a credit that may be applied against state income or business privilege taxes.

Sales and Use Tax Abatements
If proper procedures are followed, qualifying industries may abate all of the non-educational portion of construction-related transaction (sales and use) taxes associated with constructing and equipping a project. For state purposes, the general state sales tax rate of four percent (4%) and the state manufacturing machinery and equipment tax rate of one-and-one-half percent (1.5%) can be abated to qualifying industries.

Enterprise Zone Credit
Under certain conditions, an enterprise zone credit for sales and use tax is available for qualified participants. Please note that while the program applies to sales and use tax, it is administered by the Alabama Department of Economic and Community Affairs which will determine whether the project meets the program requirements and will provide certification to the Alabama Department of Revenue.

Inventory Exemptions
Unlike many other states, Alabama does not levy a property tax on inventory of goods, wares and merchandise that is offered for sale. Please be aware, however, that inventory that is used for lease or rental purposes is subject to the property tax.

Property Tax Abatements
For qualifying industries, it is possible to abate the non-educational portion of property tax, provided that proper procedures are followed. Such abatements are valid for a maximum period of ten years and must be granted prior to placing the project in service. The requirements for both sales and use and property tax abatements are the same. In order to qualify for the abatement of the state and non-educational local sales and use and non-educational property taxes, the prospective company must meet a Standard Industrial Classification code requirement. Please note that the local granting authority must grant the abatement for the qualifying project before the abatement can be used. Subsequently, no additional property (real or personal) may be eligible for abatement once the project is placed in service unless it is a major addition. Major addition projects must meet the Standard Industrial Classification code requirement and an investment threshold requirement of the lesser of 30 percent of the original cost of the industrial development property or $2 million.

State Specific Tax Incentives
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