United States: Alabama Enacts New Job Creation And Investment Tax Credits And Incentives

Alabama Governor Robert Bentley has signed legislation, the Alabama Jobs Act, which provides: (i) a jobs creation credit that may be taken against utility taxes and (ii) a capital investment credit that may be taken against income taxes, financial institution excise taxes, insurance premium taxes or utility taxes.1 Also, Governor Bentley approved related legislation, the Alabama Veterans and Rural Jobs Act, to provide enhanced incentives under the Alabama Jobs Act to companies located in a rural county and to companies that employ veterans.2 The new programs, which are part of the "Made in Alabama" jobs incentive package,3 will go into effect on July 3, 2015.

Overview

The legislation replaces Alabama's tax credits for projects of new businesses and business expansions, tariff credit and capital credits for qualified products4 by providing incentives in the form of a job creation credit and a capital investment credit.5 For a company to receive one or both of these credits, all of the following must occur:

  • There must be a qualifying project predominantly conducting a specified activity;
  • The qualifying project must create a certain number of new jobs;
  • The company proposing the qualifying project must be an approved company;
  • The approved company and the governor must enter into a project agreement; and
  • The proof of wages actually paid or capital actually invested must be delivered and certified.6

The qualifying project must predominantly conduct an activity specified in the statute:

  • A wide variety of activity described by certain sections of the North American Industry Classification System (NAICS), including most forms of manufacturing;7
  • Production of biofuel;
  • Original investigations or application of research findings to create new or significantly improved products or processes;
  • National or regional headquarters for a company that conducts significant business outside the state;
  • Commercial enterprises designed to attract visitors such as historical site, museums, amusement parks or conference centers;
  • A target of the state's economic development efforts under the Accelerate Alabama Strategic Economic Development Plan Alliance; or
  • A type of activity listed in a permanent Alabama Department of Commerce regulation.8

A qualifying project generally must have at least 50 new employees.9 However, this minimum job requirement does not apply to chemical manufacturing, data centers, engineering, design, research, or metal/machining technology or toolmaking. Also, for rural counties, the minimum new job requirement is reduced to 25 new employees.10

In order for a company to be approved, the Secretary of Commerce must make the following findings:

  • The project is in fact a qualifying project;
  • The project does not decrease Alabama's exports; and
  • The amount of tax incentives applied for are less than the anticipated Alabama revenues to be generated by the project.11

Following a determination that these requirements are met, the Secretary of Commerce will recommend to the governor that the company be designated as an approved company.12 After reviewing this information, the governor must determine whether the company should be approved.13 If the governor approves the company, the governor will execute a project agreement with the company that allows it to claim either or both of the incentives.14 The statute expressly lists the information that must be included in the project agreement.15 Importantly, the governor has the authority to decrease the amount and duration of the incentives to ensure Alabama anticipated revenues exceed the tax incentives sought.16

Job Creation Credit

If provided in the project agreement, the company is allowed an annual jobs credit against utility taxes for 10 years that equals three percent of the wages paid to eligible employees during the prior year.17 For companies located in rural counties, the benefit may be increased to four percent of employee wages.18 The new program also allows for an additional 0.5 percent credit against employee wages if at least 12 percent of the qualifying employees are military veterans.19

The project agreement must provide that one of the following methods be used to realize the benefits of the job credit: (i) refund out of utility taxes during the incentive period; or (ii) claimed as a credit against utility taxes actually paid.20 Unused credits may be carried forward for a maximum of five years.

Capital Investment Credit

A project agreement may provide for a capital investment21 credit to be taken against state income taxes, financial institution excise taxes, insurance premium taxes, utility taxes, or a combination of these taxes.22 The credit is equal to 1.5 percent of capital invested annually for up to 10 years.23 For companies located in rural counties, the credit period may be extended to a total of 15 years.24

A project agreement must specify any one or more of the following methods by which the investment credit will be recognized, as long as a credit is not used more than once: (i) claimed as a credit against the taxes that are actually paid;25 (ii) for companies taxed as a flow-through entity, the credit may be allocated among some or all of the owners; or (iii) for the first three years, all or part of the credit may transferred to another person or company provided certain conditions are satisfied.26

Commentary

The Alabama Jobs Act is intended to encourage the creation of jobs and the investment of capital in Alabama. As mentioned above, the benefits associated with this program are negotiated with the state of Alabama and are not available "as of right." If the company meets the baseline criteria, the company is able to initiate negotiations with the Department of Commerce, the agency overseeing the program. However, in order to finalize the negotiation process and receive benefits, the company must receive formal approvals from both the Department of Commerce and the Governor's Office. If approved, the company must enter into a formal agreement with the state of Alabama which will dictate the terms of the incentive award.27 The Alabama Jobs Act programs are not mutually exclusive and may be used in conjunction with each other, subject to negotiation.

Prior to claiming any credit under the Alabama Jobs Act, the approved company must submit annual certifications of the jobs created, wages paid for the new jobs, and the capital investment made to the Department of Commerce.28 Once the credits have been verified by the Department of Commerce, the company will be able to file the necessary paperwork to realize the benefits, which may include tax credits and refunds. Companies should be advised that the Department of Commerce is sanctioned to report to the Department of Revenue any failure of an approved company to meet the jobs, wage or capital investment requirements specified in the project agreement and authorizes the Department of Revenue to assess recapture and interest penalties on an approved company for any unearned portion of the jobs credit or the investment credit.29 Recapture provisions will be outlined in the agreement with the state.30

Footnotes

1 Act 27 (H.B. 58), Laws 2015.

2 Act 41 (H.B. 57), Laws 2015.

3 Press Release, Office of Alabama Governor Robert Bentley, June 16, 2015. Note that the package also includes the Alabama Reinvestment and Abatements Act. Act 24 (H.B. 59), Laws 2015. This legislation provides incentives for Alabama-based facilities that are refurbished, upgraded or placed back in service.

4 HB 58, § 7.

5 ALA. CODE §§ 40-18-370 et seq.

6 ALA. CODE § 40-18-371.

7 The following NAICS code sections are listed: 1133 (logging); 115111 (cotton ginning); 2121 (coal or anthracite mining); 22111 (power generation); 221330 (steam and air-conditioning supply); 31–33 (manufacturing, other than 311811 (retail bakeries)); 423 and 424 (wholesale trade); 482 (railroads); 4862 (pipeline transportation of natural gas); 48691 (pipeline transportation of refined petroleum products); 48699 (other pipeline transportation); 48819 (air transportation support); 4882 (rail transportation support); 4883 (water transportation, other than 48833 (navigational services to shipping)); 493 (warehousing and storage); 511 (publishers); 5121 (motion picture and video production and distribution, other than 51213 (theaters)); 51221 (record production); 517 (telecommunications); 518 (data processing, hosting and related services (without regard to the premise that data processing and related services be performed in conjunction with a third party)); 51913 (Internet publishing, broadcasting and search portals); 52232 (financial transactions processing, reserve and clearinghouse activities); 54133 and 54134 (engineering or drafting services if predominantly in furtherance of another listed activity); 54138 (testing laboratories); 5415 (computer-related services); 541614 (process, physical distribution and logistics consulting services); 5417 (certain research and development); 55 (management of companies and enterprises (if not for the production of electricity)); 561422 (telemarketing and other contact centers that do not originate telephone calls)); 562213 (solid waste combustors and incinerators); 56291 (remediation services); 56292 (materials recovery facilities); 611512 (flight training); 927 (space research and technology); or 92811 (national security).

8 ALA. CODE § 40-18-372(a). However, a qualifying project may not engage predominantly in farming activities or the retail sale of tangible personal property or services. Also, it may not be a shopping center, restaurant, movie theater, bowling alley, fitness center, miniature golf course, nightclub, gaming facility or establishment serving the local community.

9 ALA. CODE § 40-18-372(b).

10 ALA. CODE § 40-18-376.1(a), (c).

11 ALA. CODE § 40-18-373(a).

12 ALA. CODE § 40-18-373(b).

13 ALA. CODE § 40-18-373(c).

14 ALA. CODE § 40-18-374.

15 ALA. CODE § 40-18-374(b).

16 ALA. CODE § 40-18-374(c).

17 ALA. CODE § 40-18-375(a).

18 ALA. CODE § 40-18-376.1(d)(1).

19 ALA. CODE § 40-18-376.2(b).

20 ALA. CODE § 40-18-375(b).

21 A "capital investment" is defined as all costs and expenses incurred by the company in connection with the acquisition, construction, installation and equipping of a qualifying project, if the costs are required to be capitalized for federal income tax purposes. However, for any project involving the extraction of natural resources, the capital investment does not include the costs of acquiring land, land recording fees, architectural or engineering services, environmental studies and environmental mitigation. ALA. CODE § 40-18-370(2).

22 ALA. CODE § 40-18-376(a).

23 Id.

24 ALA. CODE § 40-18-376.1(d)(2).

25 Unused credits may be carried forward for a maximum of five years.

26 ALA. CODE § 40-18-376(b).

27 ALA. CODE § 40-18-374.

28 ALA. CODE §§ 40-18-375(b)(1)(b); 40-18-376(b)(1)(b).

29 ALA. CODE § 40-18-378(c).

30 ALA. CODE § 40-18-378(b).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions