Section 40-18-190 et seq., Code of Alabama 1975 provides for a capital credit 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.”

The capital credit 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. Act 2001-965 amended the income tax capital credit law to allow for lower thresholds for the requirements for new employees and for capital costs for projects locating or expanding in a “favored geographic area.” The changes became effective December 1, 2001 and the “favored geographic area” is defined as either of the following:

a) State Enterprise Zones. (as defined by the Alabama Enterprise Zone Act, including parts of 25 counties and parts of 3 cities)

b) Less Developed Counties. The Department of Industrial Relations (DIR) determines these counties based on three criteria in the law:

1. Percent change in population over the most recent 5-year period;
   
2. Personal per capita income in the last calendar year;
   
3. Average percent employed over the last 12 months
   
   

DIR must re-determine Less Developed Counties every year on January 1. A current Favored Geographic Area listing is available on the Department of Revenue’s web site at www.ador.state.al.us under “Tax Incentives.” A project that qualifies in a Favored Geographic Area will continue to be a qualified project, even if the county later loses its designation as a Favored Geographic Area, as long as the project otherwise remains in compliance with the law.

Qualifications

There are four statutory requirements that must be met in order to qualify for the credit:

1. The qualifying project must constitute either a “headquarters facility” or an “industrial, warehousing, or research activity” defined as any trade or business described in the 1997 North American Industry Classification System (NAICS), promulgated by the Executive Office of the President of the United States, Office of Management and Budget as:

• Sectors 31 (other than National Industry 311811), 32, 33 & 42,
  
• Subsector 511,
  
• Industry Groups 5142 and 5415,
  
• Industries 54138 and 54171,
  
• Industry 514191,
• or any process or treatment facility which recycles, reclaims, or converts materials, which include solids, liquids, or gases, to a reusable product. A headquarters facility is defined as a facility which 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 principal operating officer is defined as the person with chief responsibility for the daily business operations of the qualifying project.
  
  

2. A capital investment of:

• Not less than $2,000,000 for new, expansion, and headquarters facility projects
  
• Not less than $1,000,000 for small business addition projects
  
• Not less than $500,000 for favored geographic area projects
  
  

3. Employment requirements of:

• At least 20 new employees at new, expansion, or headquarters facility projects
  
• At least 15 new employees at small business addition projects
  
• At least 5 new employees at favored geographic area projects
  
• New employees must meet the statutory definition of new employees, found in Section 40-18-190(9), Code of Alabama 1975. “New employees” cannot have worked at the site before, and cannot have worked for the project entity in Alabama before. Required jobs must be provided by the date which is not later than one (1) year after the project is placed in service, continuing each year thereafter.
  
  

4. New employees at the project must be paid either an average hourly wage of at least eight dollars ($8) per hour or an average total compensation of not less than ten dollars ($10) per hour, including benefits. This requirement, however, does not include employees of direct processors of agricultural food products; these employee’s wages shall be determined by the local labor market rate.

Qualifying projects can be set up as either a ‘one step’ project or as a ‘phased’ project. The law does specify that a report of intent (Form INT) must be submitted to the Department of Revenue before the project is placed in service to be eligible to receive the capital credit. For more information regarding the capital credit, visit the Department of Revenue’s web site at www.ador.state.al.us under “Tax Incentives” or contact:

     Alabama Department of Revenue
     Commissioner's Office
     ATTN: Capital Credit Program Administrator
     P.O. Box 327001
     Montgomery, AL 36132-7001
     Telephone: 334-242-1175

LOCAL CHAMBER ASSISTANCE
The Chamber of Commerce can assist in contacting the Alabama Department of Revenue.