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Tax Incentives Clarke County offers to partner with new companies to minimize initial capital outlays and will grant abatements and incentives in order to provide a cost efficient, competitive environment. Clarke County officials with work with companies and the appropriate state agencies to ensure that all available incentives are utilized. Tax Abatements Subject to certain geographic and jurisdictional limitations and qualification, cities, counties and public industrial authorities may grant abatements of ad valorem (property) taxes and sales and use taxes and certain mortgage and recording taxes, with respect to real and personal property acquired to establish or expand qualifying industrial and research enterprises in Alabama. To qualify, the business enterprise must be included in Standard Industrial Classification ("SIC") (or equivalent North American Industry Classification System, "NAICS") Major Groups 20-39 (manufacturing enterprises), 50 or 51 (wholesale trade), Industrial Group No. 737 (computer programming, data processing, and other computer related services) or Industry No. 4613 (refined petroleum pipelines), 8731 (commercial physical and biological research), 8733 (non-commercial research organizations), or 8734 (testing laboratories). In addition, eligible enterprises also include trades or business described in NAICS Sub sector 493 (warehousing and storage), Industry No. 488310 (port and harbor operations), or Industry Number 488320 (Marine Cargo Handling), if the trade or business is to be conducted on premises in which the Alabama State Port Authority has an ownership, leasehold, or other possessory interest and such premises are used as part of the operations of the Alabama State Port Authority. There is no minimum investment criteria for new projects. Expansions of existing projects may quality if the capital cost is at least equal to the lesser of 30 percent of the original project cost or $2,000,000. Only the non-educational portions of the ad valorem, sales, and use taxes may be abated, with the result that the amount available for abatement will vary from city to city and from county to county, depending upon their local tax structure. The non-educational portions of these taxes available for abatement typically range from approximately 40 to 60 percent, depending upon location. The sales and use tax abatement provides a one-time savings on equipment, materials, and other tangible personal property purchased for the construction and equipping of a qualifying facility. The property tax abatement may run for a period of up to 10 years. The beginning and ending dates of the property abatement period depend upon whether bonds are issued to finance the project, the date of acquisition, and the economic life of the property. For large projects, the opportunity exists to maximize potential savings by structuring the exemption period to correspond to stages or phases of project completion. The granting of these abatements is discretionary with the city, county, or industrial authority involved, although most localities in the State are willing to grant the maximum abatements for projects which will create new and better employment opportunities. Certain procedures must be followed to assure that the abatements are validly granted including adoption of a proper resolution by the granting entity and the execution and filing of an appropriate abatement agreement. Industrial Development Grants The State Industrial Development Authority (SIDA) administers a program of grants which are available to counties, municipalities, and certain public corporations and authorities to defray a portion of the cost of site preparation and other expenditures for qualifying projects. Projects must involve industrial, warehousing or research activities (i.e. must fall within one of the SIC Code categories described above for tax abatements or in SIC Industry No. 0724 (cotton ginning)) or must qualify as a headquarters facility. Grants are based upon a sliding scale percentage of the total capital costs of the qualifying project, with a maximum grant of $150,000, and must be used by the grantee for (i) preparation of a means of access to the site; (ii) site drainage; (iii) surveying, clearing, and excavation; (iv) rehabilitation of buildings and other structures; (v) other necessary and appropriate site preparation work. Capital Credits Alabama provides a "capital credit" to companies that invest in certain projects located in the State. The capital credit is an annual income tax credit equal to five percent of a project's capital costs each year for a 20-year period. In many cases, the capital credit can effectively eliminate Alabama income taxes applicable to income generated by the project. To qualify for the credit, a project must: (i) fall within certain manufacturing, warehousing, research, publishing, or computer service NAICS codes or constitute a "headquarters facility:; (ii) involve a capital investment of a least $2 million ($1 million for a "small business addition" or $500,000 for a project located in a "favored geographic area"); (iii) create jobs for at least 20 new employees (15 for a small business addition or five for a project located in a "favored geographic area"); and (iv) provide an average wage base of at least $8 per hour (or $10 per hour including benefits). The credit was expanded in 2001 to include projects located in "favored geographic areas" that meet the criteria listed above. All enterprise zones and certain less developed counties are included in the definition of "favored geographic areas". A list of "favored geographic areas" can be obtained from the Alabama Department of Revenue. A "headquarters facility" is defined as a facility that will serve as the national, regional, or State headquarters for an investing company that conducts significant business operations outside the State and will serve as the principal office of the principal operating officer of the qualifying project. The term "principal operating officer" is defined as the person with chief responsibility for the daily business operations of the qualifying project. The credit is applied to the Alabama income tax liability generated by or arising out of the qualifying project ("Project Income Taxes"). Project Income Taxes are determined pursuant to an allocation agreement between the investing company and the Alabama Department of Revenue. An allocation agreement will employ a property-payroll-sales formula, a property-payroll formula, or a separate accounting method to compute the Alabama taxable income attributable to the project. The taxable income determined by the allocation agreement may be earned by investing companies that are corporations, S corporations, partnerships, limited liability companies, etc., which do not have to be domiciled in Alabama. If the investing company is a flow-through entity (e.g., a partnership), the owners (e.g., partners) that incur Project Income Taxes will receive the benefit of the credit. The term of the capital credit is 20 years, beginning on the date that the qualifying project is placed in service. Where a project involves multiple phases of investment, the capital credit may be claimed for the project as a whole. Thus, the entire investment in a phased project may qualify for the credit even if one or more separate phases would not independently qualify. If the ownership of a qualifying project is transferred after the project is placed in service, the new owner can receive the capital credit for the remainder of the 20-year period. Because of the large size of the capital credit relative to the Alabama income taxes produced by the project, the credit will usually provide an effective "exemption" from Project Income Taxes. Thus, the net benefit of the capital credit depends on the Alabama income taxes generated during the first 20 years of operations conducted at the "qualifying project."
Exemptions for Pollution Control Equipment Machinery, equipment and materials used or constructed primarily for the control, reduction or elimination of air or water pollution is exempted from all ad valorem taxation in the State. The purchase of all such equipment, machinery and materials is also exempt from sales and use taxation. Enterprise Zone Twenty-seven enterprise zones, consisting of 24 counties and 3 cities, have been established throughout the State to encourage the construction of new facilities and the creation of new employment opportunities in those areas. To qualify for the incentives available under the enterprise zone program, a company must (i) be located in an enterprise; (ii) must fall within SIC Codes 20-42, 44-49, or consist of major warehousing, distribution centers or headquarters facilities for those types of industries; (iii) must expand its labor force, make new capital investment or prevent a loss of employment, (iv) may not have reduced employment elsewhere in Alabama to expand into an enterprise zone; and (v) must be approved for participation by the appropriate local governmental unit. Qualifying projects may receive credits against State income taxes, up to a maximum of $2500 per permanent new employee, as follows:
Additionally, for projects in which at least 35 percent pf the employees reside in the enterprise zone and were wither unemployable or were previously receiving public assistance, and which give preferences to Alabama suppliers, contractors and labor, certain additional sales and use tax and income tax exemptions may be available. Certain other non-tax incentives may also be available. Eligibility of any of theses benefits is subject to compliance with specific regulations of ADECA. Other Incentives For some projects, the State and local governments are occasionally willing to offer incentives beyond those that are provided for by existing legislation and programs. Obviously the willingness to do so depends on (i) the perceived benefits of the project to the State and local economies; (ii) the type of industry involved; (iii) the availability of a source of funding; and (iv) legal restrictions on the power of the State and its political subdivisions to assist private enterprise. In appropriate cases, industries have sought and received land to serve as the4 site for their project; assistance in the clearing, grading and other preparation of industrial sites; utility services including electricity, water, sewer, gas and telephone; public road access; relocation allowances for existing employees; additional training expenses beyond that provided by AIDT; and special legislative tax benefits. The availability of these types of incentives must be evaluated on a case-by-case basis through negotiation between the industry and appropriate State and local leaders. |
